The Importance of Ancillary Collateral in Real Estate Financing: When the Dirt Alone Will Not Suffice
Lane Powell Shareholder Greg Fox authored an article in the March/April 2012 issue of Washington Bankers Association’s (“WBA”) Issues and Answers magazine titled “The Importance of Ancillary Collateral in Real Estate Financing: When the Dirt Alone Will Not Suffice.” In the article, Fox discusses the Foreclosure Fairness Act.
The implosion of the real estate market and failure of development projects throughout Washington have tested the strength of every lender’s real estate loan documentation. A challenge often arises with respect to ancillary collateral that is often essential to the value of a lender’s real estate collateral. Permits, plans, plat approvals, construction contracts, water rights, development rights, fixtures and related assets can make or break a development project. Yet, many real estate loans fail to encumber these types of assets unambiguously, thereby subjecting collateral and the lender’s right to repayment to attack by borrowers, guarantors, junior lienholders and trustees in bankruptcy.