Business Litigation and Transactions for Commercial Lenders

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From LawHub, this is I Am the Law, a podcast where we talk with lawyers about their jobs to shed light on how they fit into the larger legal ecosystem. In this episode, Kimber Russell interviews a business litigator in Philadelphia who helps commercial lenders originate and deal with loans gone bad.

Kimber Russell:

We are joined today by Andy Park, a 2014 graduate of the Temple University Beasley School of Law. Andy's an associate at Weird & Partners, a 23 attorney firm in Pennsylvania, Delaware, and New Jersey.

Andy, you are in the Philadelphia office of what you describe as a business law firm. What exactly does that mean?

Andy Park:

So we have a very broad general business practice. We represent businesses of all sorts, but our focus is really on commercial lending; the transactional side of commercial lending, along with the litigation associated with commercial lending.

Kimber Russell:

So that's a significant amount of transactional law. But you would describe yourself as a litigator, right?

Andy Park:

Correct.

Kimber Russell:

Who are your typical clients?

Andy Park:

Our typical clients are large banks and lending institutions, even small banks, credit unions. Really just a broad variety of different business owners, whether it's real estate developers, restaurant owners, things like that.

Kimber Russell:

Now, before we talk about some of the day-to-day aspects of what you do, let's talk a little bit more about your firm. There's an even ratio between partners and associates. How would you say the size of your firm, considering that partner to associate ratio, affects you as a junior associate?

Andy Park:

Well, generally speaking, given the size of our firm, we work on a one partner, one associate model, whether it's for transactions or litigation. And given the size of our firm, and given that model, that requires the associate to be ready to handle a wide variety of tasks; including menial tasks, making copies, down to the substantive things like drafting pleadings, arguing motions, or even talking with a client or communicating with a client.

Kimber Russell:

Are associates signed to a specific practice area or do you float amongst the different practice areas?

Andy Park:

Yeah, we float amongst the different practice areas.

Kimber Russell:

Considering this ratio where it seems like there's fewer associates than you might have in a typical firm, how does that impact you as a young associate?

Andy Park:

You're kind of molded through your work experience. So I find that a lot of the associates, I find that as they get more experience, they develop relationships or skills based off of the work that they've received. So there are some associates who are more familiar with real estate transactions, some associates who are more familiar with loan documentation, and others who are just more familiar with general litigation.

Kimber Russell:

But considering the fact that you're working so closely with individual partners, do you say that gives you a little less leeway when it comes to having some room for error?

Andy Park:

Yeah, I think so. Given the size of our firm and the demands, you're kind of thrown into the water as soon as you get there, or at least there's that feeling. So sometimes you are concerned that there is a very little room for error.

Kimber Russell:

You had mentioned before that you have client contact. How much client contact do you have, even as a young associate?

Andy Park:

I'm fortunate enough to get a lot of client contact, and I think a lot of my fellow associates agree. Again, it's just the realities of our firm. So if our client needs an update or client needs to talk to somebody about something and the partner is unavailable at that time, really there's no one else but the associate.

Kimber Russell:

To give us an idea of what you do and just how diverse the practice is, let's talk about the life cycle of a troubled loan. That's one of the things your firm does. Many of your clients are commercial lenders, as you said. So let's say somebody comes into a bank, needs a loan to do a construction project. What would your role be in this type of a transaction?

Andy Park:

It really starts off at negotiation. And if the lender agrees to make the loan to the borrower, there will be a lot of due diligence involved. You want to find out who exactly the lender is or the perspective lender is, what their assets are, what their business is, purpose of the specific loan. Oftentimes the loan is going to be secured by an asset, usually real estate. So you want to do diligence into the real estate; what its value is, its proposed use. If the loan is for construction, what the exact construction project is going to be and the value that it will bring after completed.

Kimber Russell:

So Andy, talk to me a little bit more about discovering the value of a proposed project like that.

Andy Park:

Oftentimes the bank will commission an appraisal to see what the value is as of the date of the loan, but the bank also wants to see what the property is going to be worth after the proposed construction is completed. The bank also wants to make sure that there are no prior security interests, other mortgages or liens that are encumbering the property that may otherwise eliminate some of the value in the property.

And the lender's concern with the value is, in the event that the borrower defaults and the lender has to turn to the property to foreclose on the property, the lender wants to make sure that in that event it can recoup as much value as it can.

Kimber Russell:

What are some of the challenges that you find helping a lender discover this information?

Andy Park:

At least from my perspective as a new associate, it's just thinking about all the things to watch out for. There are so many different things that you need to be concerned about. You need to run searches for judgements, security interests that are attached the property and other mortgages. You need to check the land records, whether it's the county recordings for any prior deeds or defective deeds, that are recorded against the property. And as a new associate with very little experience, oftentimes you're just not aware of all it is that you have to do.

Kimber Russell:

If a business were to get in trouble and they're unable to keep up with their loan payments, what sort of options can you help those banks to navigate? When the commercial borrower either defaults or informs the bank that a default is likely?

Andy Park:

There's really only two options. You can either negotiate some sort of forbearance or modification of the loan. The second being litigation. And it really depends on what the value of the loan is to the bank and the borrower's ability to continue paying or servicing the loan. In that case, before the bank makes an actual decision, we would need additional information from the borrower to take a look at his projected income or ability to pay.

Kimber Russell:

So what would a forbearance agreement look like in particular?

Andy Park:

The forbearance agreement is essentially a new contract that rolls over the terms of the initial loan, but extends the maturity date or the period in which payments are made under the loan.

Kimber Russell:

And if litigation is an eventuality, what shape does that take?

Andy Park:

Well, eventually seek to get a judgment, and either render that judgment to foreclosure if the loan is secured by property, or get a judgment and try to collect what it can from the borrower.

Kimber Russell:

So how do you determine what the right course of action is, whether it's to settle or to go forward with litigation?

Andy Park:

It largely depends on the financial condition of the borrower, as well as the value of the loan to the bank, and what the value of the property is. So if the bank is confident that the property value remains high and the borrower has the ability to continue servicing or paying the loan, the bank may well decide to continue or extend the maturity date of the loan through a forbearance agreement as opposed to proceeding with litigation.

Kimber Russell:

Andy, you describe yourself as a litigator, so you must spend a good amount of your time going after some of these borrowers who default. What does that look like on a daily basis for you?

Andy Park:

So it starts off just like a lot of other litigation with the filing of a complaint. And then we would go through discovery and the motions period, with the end goal being to obtain a judgment against the borrower. In addition to that, oftentimes the bank has to defend itself from the borrower's own claims or counterclaims arising from theories of lender liability or other torts or causes of action against the contract or the loan document.

Kimber Russell:

So Andy, as a young litigator in this firm, what role do you play from the filing to the discovery to the ultimate trial?

Andy Park:

So given our one partner, one associate model, I have a large amount of responsibilities. And that includes everything from drafting pleadings to arguing motions; down to what some may consider even menial tasks, making copies and calling the court to schedule a hearing or to follow up on the status of a motion, or to assisting a paralegal with filing.

Kimber Russell:

Have you had any significant courtroom experience?

Andy Park:

Yeah, I do have a fair amount of courtroom experience. I think for someone my age and level of experience, I think that I have a lot more to learn.

Kimber Russell:

What's your favorite part of the job?

Andy Park:

My favorite part of the job is my level of interaction and involvement in cases. I would say just everything that I do, to me, feel substantive. So I think there's a lot of things that I'm happy to say that I've worked on. Again, just because of the size of the firm in which we work, I'm happy to take an active role in the cases that I get.

Kimber Russell:

Now, if we circle back to the process where your clients are going after a borrower that has defaulted. The bank ends up with all this real estate on its hands after a settlement or a verdict; they don't really want to be landlords. What role do you play in helping them make the sale of that property, and how do you take part in that transaction?

Andy Park:

So after the bank takes title to the property, we assist the bank in negotiating with a prospective buyer, and drafting an agreement of sale for the real estate. I would review an agreement of sale and assist in the negotiations. It's really difficult to say what exactly I do. I mean, I just provide support in so many different areas. I think as a young associate, a lot of what I do is just fact checking. So if my partner drafts an agreement of sale, I will review the agreement and make sure that all of the facts and recitals are correct; all of the dates, the values. Because again, as the only associate that had this file was familiar with it, I'm in a position to just confirm that everything is true.

Kimber Russell:

So in the case that there are some facts that are erroneous, what is the outcome there? Is it a big deal?

Andy Park:

It really depends. I have seen cases where somebody or an attorney prepared a deed for purposes of a real estate transaction, and the attorney entered the wrong description in the wrong meets and bounds of the property. So the deed that was prepared was for the neighboring property and not the property that was actually subject to a transaction.

Kimber Russell:

Whoa.

Andy Park:

Of course, that wasn't at our firm.

Kimber Russell:

Wow. So how do you remedy that?

Andy Park:

The shortest way to explain that would be you would have to file a corrective deed or correct the defect of the deed.

Kimber Russell:

So Andy, considering your litigation experience, it sounds like you're very well-equipped to identify problematic facts for your clients.

Andy Park:

I'm able to take all of my prior experience, things that I've seen in deals gone wrong, or take my prior litigation experience, and use that in advising the client to prevent any future problems or to anticipate any that might arise.

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