Rogers Towers: Lender Workouts: Avoid the Money Pit - Don't Forget the Assignments


The economy has touched virtually every business and individual. One of the most impacted industries is the financial market. Lenders' business practices have adjusted significantly from financing projects and purchases to collection and enforcement of security interest. A large portion of these cases result in litigation.  However, in an increasing number of instances, workout arrangements and/or settlement agreements are executed between the borrower and lender. Many of these matters involve recently constructed improvements or improvements that are still under construction. In these situations, the lender should thoroughly evaluate the improvements as part of the due diligence process while negotiating workouts and/or settlement agreements. This process should include a facility assessment performed by a qualified expert such as an architect, engineer or general contractor, followed by an analysis of viable avenues for recovery of damages associated with identified construction defects. This evaluation will provide the lender with a better understanding of the soundness of the improvements. If defective construction is identified, the lender should be certain to acquire an assignment of the construction contract as well as any and all claims against the parties responsible for the defective construction. (While many construction contracts contain language prohibiting assignment, the claims arising from the contract are still typically assignable.) Even if the party responsible for the defective construction is no longer a viable business, an insurance policy is typically available to provide coverage for damages.

Keep in mind that these avenues for potential recovery of damages resulting from construction defects may also be available in a standard foreclosure where the construction contract was not assigned. Under Florida law, an owner can maintain a claim against a party responsible for a building code violation independent of contractual privity.

These precautionary measures can help provide a lender with greater assurance that it is acquiring security in a solid improvement rather than a money pit.


Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Rogers Towers | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.