One of the niche practice areas in our nationally recognized fraud recovery practice is CMBS and special servicer fraud litigation. Short for commercial mortgage backed securities, tens of billions of dollars in commercial real estate projects are secured by CMBS trusts. Ordinary servicers are responsible for collecting payments, making sure the mortgage is paid and insuring other essential bills are paid such as maintenance, taxes and insurance. When a borrower defaults or there are signs of trouble, the normal servicing function is turned over to special servicers.
The three largest special servicers are C-III Asset Management, CWCapital and LNR Partners.
Special servicers have broad powers. Once a loan is turned over to special servicing, the goal becomes to preserve the asset and collect as much money for the note holders as possible.
New evidence and our own extensive CMBS fraud practice experience suggests that some of these special servicers are actively working in their own best interests.
What does that mean? Special servicers get paid first and they get paid well. The longer a troubled property stays in limbo, the more special servicers get paid.
More ominously, we believe that some of these companies are working to buy the properties for their own portfolio. Think about it, they have the best information about rent rolls and loans. They also have the power to greatly influence the manner of sale and the price. When that happens, both the borrowers and noteholders often suffer.
While there are many experienced real estate lawyers, few have the experience dealing with CMBS trusts, special servicers and representing groups of investors or borrowers. Litigating against special servicers is difficult. Typically only larger law firms have the experience to litigate these sophisticated claims. And inevitably, those firms have conflicts of interest galore and are precluded from taking these cases for borrowers.
Our CMBS and Special Servicer practice includes:
- Foreclosure Defense. Representing borrowers who are facing foreclosure.
- Deficiency Litigation. Sometimes we are called upon to defend claims for deficiency judgments when the property has previously been foreclosed and auctioned.
- Pre-Negotiation. We help borrowers when properties are in distress.
- Assisting with Restructuring Counsel. The best defense is usually a good offense. If the special servicer or others have violated trust rules or failed to act in good faith, both borrowers and junior note holders have increased leverage over the special servicer.
- Special Servicer Fraud Litigation. We represent both junior bond holders and borrowers in actions against servicers, special servicers, trustees and other third parties.
Our goal is to use creative strategies to best represent our client’s interests. And we don’t have conflicts of interest because we don’t represent banks or servicers.