The document discusses mezzanine lending transactions and foreclosure on equity interests in real estate deals. It provides an overview of mezzanine lending, explaining that it involves lending secured by ownership interests in the entity that owns the underlying real property, rather than a direct lien on the property. The document then covers various aspects of perfecting security interests in equity collateral and the interplay between the Uniform Commercial Code (UCC) and foreclosure processes.

1. FIRST AMERICAN TITLE INSURANCE COMPANY

2. FORECLOSURE ON EQUITY INTERESTS IN REAL ESTATE MEZZANINE LENDING TRANSACTIONS

3. Our Mission Cover foreclosure of Article 9 security interests on equity collateral in real estate mezzanine lending.

12. RE TURN RISK DEBT EQUITY Mezzanine Financing What is Mezzanine Lending?

16. Real Property Lender Owner of Real Property Mezzanine Lender A B Mortgage Loan Equity Secured Loans Equity Owners Mezzanine Lending

17. Property Lender Owner of Property Mezzanine Lender #1 A B Mortgage Loan Equity Owners Co-Borrowers D C E Mezzanine Lender #2 F G H Mezzanine Lender #3 I Mezzanine Lender #4 Mezzanine Loans Mezzanine Lending

18. Lender Borrower A B Asset Based Loan Equity Secured Guarantees Equity Owners PLEDGED EQUITY LENDING Law is the Same

20. Perfection of liens (security interests) in equity interest collateral. Lien Perfection

22. “ Therefore, Moody’s expects that mortgage loan borrowers will irrevocably “ opt-in ” to Article 8 of the UCC and will certificate the partnership or LLC membership interest that will be pledged to the mezzanine lender.” Moody’s Report

23. “ UCC-1 financing statements should additionally be filed, as “fail-safe” protection.” Moody’s Report

28. Protected Purchaser Status and Equity Ownership Coverage LENDER’S POLICY Mezzanine Endorsement – Primary Obligor Pledged Equity Endorsement – Secondary Obligor BUYER’S POLICY Equity Ownership Endorsement

33. NOTE: If entity subsequently opts-in to be a security under Article 8 (no way to prevent), then Protected Purchaser has priority in security over first lien-holder who perfected by filing! Entity Ownership Interests Is it a security under Art. 8? Perfection by Filing Financing Statement Perfection by Control Agreement Is it certificated or uncertificated ? NO YES Certificated Uncertificated WINS over filing! Perfection by Possession + Endorsement Control

36. I WIN!!!!!! ARTICLE 8 and ARTICLE 9 - INTERRELATIONSHIP Perfection by Control Protected Purchaser Investment Property Opt-In to Article 8 – LLC or Partnership Interest a Security ARTICLE 9 ARTICLE 8

37. Equity Owner – California LLC Property Owner – Delaware LLC Ultimate Parent The Property First Mezzanine Lender Loan Secured by Pledge of Equity In Delaware Sub Lender Perfects Security Interest in Pledged Equity by Filing UCC-1 with CA SOS Step #1 A Case Study

38. Old Equity Owner – California LLC Property Owner – Delaware LLC Ultimate Parent The Property First Mezzanine Lender New Equity Owner- Delaware LLC 1. 3. 1. Sells Equity Ownership in Sub to Sister Sub for $100,000,000 Second Mezzanine Lender 2. 2. Provides New Mezzanine Loan Secured by Equity Ownership in Del. Sub – Perfects by Control and Protected Purchaser 3. Pays Off First Mezzanine Lender with Proceeds of Mezz Loan from Second Mezzanine Lender Step #2 A Case Study

39. First Mezzanine Lender Sues Old Equity Owner for Conversion Based On Fraudulent Conveyance Alleging Property Worth $400,000,000 and Wants $2,000,000 kicker Old Equity Owner – California LLC Property Owner – Delaware LLC Ultimate Parent The Property First Mezzanine Lender New Equity Owner- Delaware LLC Second Mezzanine Lender Step #3 A Case Study

43. Evaluate Facts Review senior loan documents – if mezzanine lender acquires the mezzanine collateral it will become the direct or indirect owner of the property/owner mortgage borrower and will be subject to the terms of the senior loan documents Review other material contracts and agreements such as ground leases and material contracts pertaining to the underlying property.

49. Sale Procedures Compared Purpose Judgment for deficiency? When final? Legal standard? By whom? Article 9 sale Judicial sale

50. Sale Procedures Compared Enforce mortgage Protect “equity” Maybe fix deficiency Purpose Judgment for deficiency? When final? Legal standard? By whom? Article 9 sale Judicial sale

51. Sale Procedures Compared Enforce SI Protect “surplus” Maybe fix deficiency Enforce mortgage Protect “equity” Maybe fix deficiency Purpose Judgment for deficiency? When final? Legal standard? By whom? Article 9 sale Judicial sale

52. Sale Procedures Compared Enforce SI Protect “surplus” Maybe fix deficiency Enforce mortgage Protect “equity” Maybe fix deficiency Purpose Judgment for deficiency? When final? Legal standard? Sheriff, clerk By whom? Article 9 sale Judicial sale

53. Sale Procedures Compared Enforce SI Protect “surplus” Maybe fix deficiency Enforce mortgage Protect “equity” Maybe fix deficiency Purpose Judgment for deficiency? When final? Legal standard? Secured party Sheriff, clerk By whom? Article 9 sale Judicial sale

54. Sale Procedures Compared Enforce SI Protect “surplus” Maybe fix deficiency Enforce mortgage Protect “equity” Maybe fix deficiency Purpose Judgment for deficiency? When final? Fixed procedural requirements Legal standard? Secured party Sheriff, clerk By whom? Article 9 sale Judicial sale

55. Sale Procedures Compared Enforce SI Protect “surplus” Maybe fix deficiency Enforce mortgage Protect “equity” Maybe fix deficiency Purpose Judgment for deficiency? When final? Commercially reasonable Fixed procedural requirements Legal standard? Secured party Sheriff, clerk By whom? Article 9 sale Judicial sale

56. Sale Procedures Compared Enforce SI Protect “surplus” Maybe fix deficiency Enforce mortgage Protect “equity” Maybe fix deficiency Purpose Judgment for deficiency? On confirmation When final? Commercially reasonable Fixed procedural requirements Legal standard? Secured party Sheriff, clerk By whom? Article 9 sale Judicial sale

57. Sale Procedures Compared Enforce SI Protect “surplus” Maybe fix deficiency Enforce mortgage Protect “equity” Maybe fix deficiency Purpose Judgment for deficiency? Upon sale On confirmation When final? Commercially reasonable Fixed procedural requirements Legal standard? Secured party Sheriff, clerk By whom? Article 9 sale Judicial sale

58. Sale Procedures Compared Enforce SI Protect “surplus” Maybe fix deficiency Enforce mortgage Protect “equity” Maybe fix deficiency Purpose Varied rules Judgment for deficiency? Upon sale On confirmation When final? Commercially reasonable Fixed procedural requirements Legal standard? Secured party Sheriff, clerk By whom? Article 9 sale Judicial sale

59. Sale Procedures Compared Enforce SI Protect “surplus” Maybe fix deficiency Enforce mortgage Protect “equity” Maybe fix deficiency Purpose If procedure OK, and secured is not buyer Varied rules Judgment for deficiency? Upon sale On confirmation When final? Commercially reasonable Fixed procedural requirements Legal standard? Secured party Sheriff, clerk By whom? Article 9 sale Judicial sale

60. Sale Procedures Compared Enforce SI Protect “surplus” Maybe fix deficiency Enforce mortgage Protect “equity” Maybe fix deficiency Purpose If procedure OK, and secured is not buyer Varied rules Judgment for deficiency? Upon sale On confirmation When final? Commercially reasonable Fixed procedural requirements Legal standard? Secured party Sheriff, clerk By whom? Article 9 sale Judicial sale

80. Settlement Procedures Compared System Purpose Consumer exceptions Formal requirements Acceptance of Collateral, § 9-620 Deed in lieu

81. Settlement Procedures Compared Real estate System Purpose Consumer exceptions Formal requirements Acceptance of Collateral, § 9-620 Deed in lieu

82. Settlement Procedures Compared Personal property Real estate System Purpose Consumer exceptions Formal requirements Acceptance of Collateral, § 9-620 Deed in lieu

83. Settlement Procedures Compared Personal property Real estate System Settlement that avoids foreclosure Purpose Consumer exceptions Formal requirements Acceptance of Collateral, § 9-620 Deed in lieu

84. Settlement Procedures Compared Personal property Real estate System Settlement that avoids foreclosure Settlement that avoids foreclosure Purpose Consumer exceptions Formal requirements Acceptance of Collateral, § 9-620 Deed in lieu

85. Settlement Procedures Compared Personal property Real estate System Settlement that avoids foreclosure Settlement that avoids foreclosure Purpose Consumer exceptions Deed Formal requirements Acceptance of Collateral, § 9-620 Deed in lieu

86. Settlement Procedures Compared Personal property Real estate System Settlement that avoids foreclosure Settlement that avoids foreclosure Purpose Consumer exceptions 1. Authenticated agree-ment partial satisfaction 2. Lack of objection if in full satisfaction Deed Formal requirements Acceptance of Collateral, § 9-620 Deed in lieu

87. Settlement Procedures Compared Personal property Real estate System Settlement that avoids foreclosure Settlement that avoids foreclosure Purpose No Consumer exceptions 1. Authenticated agree-ment partial satisfaction 2. Lack of objection if in full satisfaction Deed Formal requirements Acceptance of Collateral, § 9-620 Deed in lieu

88. Settlement Procedures Compared Personal property Real estate System Settlement that avoids foreclosure Settlement that avoids foreclosure Purpose 1. Waiver needed if debtor has paid 60% 2. No partial satisfaction 3. Not while debtor has the collateral No Consumer exceptions 1. Authenticated agree-ment partial satisfaction 2. Lack of objection if in full satisfaction Deed Formal requirements Acceptance of Collateral, § 9-620 Deed in lieu

89. Settlement Procedures Compared Personal property Real estate System Settlement that avoids foreclosure Settlement that avoids foreclosure Purpose 1. Waiver needed if debtor has paid 60% 2. No partial satisfaction 3. Not while debtor has the collateral No Consumer exceptions 1. Authenticated agree-ment partial satisfaction 2. Lack of objection if in full satisfaction Deed Formal requirements Acceptance of Collateral, § 9-620 Deed in lieu

90. Procedures for Acceptance (Consent) Actual Agreement (for partial or full satisfaction) Lack of Objection (only for full satisfaction)

91. Procedures for Acceptance (Consent) Secured party consent: Secured party sends unconditional proposal to accept in full satisfaction § 9-620(b)(1). Actual Agreement (for partial or full satisfaction) Lack of Objection (only for full satisfaction)

92. Procedures for Acceptance (Consent) Secured party consent: Secured party sends unconditional proposal to accept in full satisfaction § 9-620(b)(1). Debtor consent: Secured party receives no objection to proposal within 20 days, § 9-620(c)(2)(C). Actual Agreement (for partial or full satisfaction) Lack of Objection (only for full satisfaction)

93. Procedures for Acceptance (Consent) Secured party consent: Secured party consents in an authenticated record § 9-620(b)(1). Secured party consent: Secured party sends unconditional proposal to accept in full satisfaction § 9-620(b)(1). Debtor consent: Secured party receives no objection to proposal within 20 days, § 9-620(c)(2)(C). Actual Agreement (for partial or full satisfaction) Lack of Objection (only for full satisfaction)

94. Procedures for Acceptance (Consent) Secured party consent: Secured party consents in an authenticated record § 9-620(b)(1). Secured party consent: Secured party sends unconditional proposal to accept in full satisfaction § 9-620(b)(1). Debtor consent: Debtor agrees to terms in a record authenticated after default, § 9-620(c)(1). Debtor consent: Secured party receives no objection to proposal within 20 days, § 9-620(c)(2)(C). Actual Agreement (for partial or full satisfaction) Lack of Objection (only for full satisfaction)

95. Procedures for Acceptance (Consent) Secured party consent: Secured party consents in an authenticated record § 9-620(b)(1). Secured party consent: Secured party sends unconditional proposal to accept in full satisfaction § 9-620(b)(1). Debtor consent: Debtor agrees to terms in a record authenticated after default, § 9-620(c)(1). Debtor consent: Secured party receives no objection to proposal within 20 days, § 9-620(c)(2)(C). Actual Agreement (for partial or full satisfaction) Lack of Objection (only for full satisfaction)

101. Foreclosure On Equity: AND THEN THE MEZZANINE BORROWER FILES BANKRUPTCY ! FINAL THOUGHTS IF WE HAVE TIME

102. Foreclosure On Equity: BUT REMEMBER “BAD BOY” CARVEOUTS TO NONRECOURSE LIABILITY!

106. Section 363 Sales Increased Scrutiny for Sales to Insiders

109. L ENDER as O WNER: When Lender acquires 100% of the equity of Debtor as a recovery strategy. Equity Play:

112. Risks of Lender/Owner Piercing the Veil Equitable Subordination Management Risks Equity Play:

118. Lender/Owner Management Risk Fiduciary D uties of Directors

123. UCC EAGLE 9 ® NEW PROGRAMS, NEW SOLUTIONS!

126. THANK YOU