1st/Mezz Foreclosure
What happens to the mezzanine lender in the event that the 1st mortgage lender forecloses? Referencing this TRD Article about World Class Holdings defaulting on an Austin Business Park.
Facts (chronological order)
- JPMorgan originates $71 million first mortgage in 2019 secured by the Property
- JPMorgan originates $29 million mezzanine loan in 2019 and immediately sells the note
- Karlin acquires the mezz note in 2021
- Both senior/subordinate loans become due in 2021 ... but are not paid in full
- JPMorgan and Karlin consider foreclosing ... but Karlin ultimately ends up acquiring the 1st mortgage "to salvage the investment."
Can someone explain to me why Karlin would acquire the 1st mortgage to "salvage the investment?" I am not very knowledgeable in real estate finance.
The mezz is fuk.
If the senior mortgage lender is foreclosing then the mezz is wiped out.
The mezz lender bought the senior loan likely so they can continue the foreclosure process, take ownership of the asset, and attempt to realize value that they think is in excess of the price they paid for the senior loan.
temujiinThe mezz is fuk.If the senior mortgage lender is foreclosing then the mezz is wiped out.The mezz lender bought the senior loan likely so they can continue the foreclosure process, take ownership of the asset, and attempt to realize value that they think is in excess of the price they paid for the senior loan.Well done
Hypothetically, if the 1st mortgage lender foreclosed, auctioned the property, and received $105 million.
Wouldn’t that make the mezz piece whole since the total debt balance was $100 million?
Or would the mezz position get no proceeds in an REO sale if foreclosed by the 1st mortgage lender
Just trying to understand the mechanics around foreclosures… perhaps I should open a RE law textbook.
Sequi veritatis harum est eaque debitis. Possimus error deleniti nemo et. Quisquam est iste delectus possimus sapiente omnis maxime vel. Illo voluptatibus laudantium est. Est porro libero accusamus molestiae unde. Quasi aut assumenda velit enim dignissimos mollitia voluptas. Odio ut nisi fuga voluptas tenetur.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...