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Richard Brunette is a partner in the Finance and Bankruptcy Practice Group in the Los Angeles office of Sheppard Mullin.

OK, so you’re a sophisticated lending attorney in Metropolis who is comfortable with everything from aircraft financing to syndicated loans secured by casinos in Macau. Yet you feel a twinge of uncertainty when a business loan is to be secured by wine inventory made from grapes grown in both California and Washington. You know intuitively that anytime farmers, ranchers or food processors are in the mix, either as a borrower or a supplier to the borrower, the underwriting and documentation challenges are not uniform on a state-by-state basis, and are compounded by an overlay of federal laws designed to protect growers of perishable crops and providers of livestock. To get a reality check, you sometimes will secretly call your law school classmate who oddly returned to Smallville and now represents its one bank.
Continue Reading Farm Lending Pitfalls For Urban Lawyers

The 2021 increase to California’s homestead exemption to up to $600,000 stands to change the legal and economic relationship of guarantors with their lenders and vendors who make loans or sell goods or services on credit.  Before examining this important change in California’s homestead exemption and its effect on guaranties, some perspective is needed on guaranties themselves.
Continue Reading It’s Time to (Carefully) Secure that Guaranty

The Ninth Circuit on June 1 affirmed a key bankruptcy principle that liens may survive and “pass through” the bankruptcy process even if the underlying claim secured by the lien is disallowed.  The facts in Lane v. The Bank of New York Mellon (Ninth Cir. Ct. Of Appeals, No. 18-60059,  June 1, 2020) are all too familiar –  a mortgage loan originated by Countrywide Home Loans wound up in a huge pool of securities with The Bank of New York Mellon serving as trustee for the certificate holders.  Countrywide had endorsed the promissory note in blank, which made it payable to the bearer.
Continue Reading Ninth Circuit Affirms that Liens Pass Through Bankruptcy Even if Underlying Claim is Disallowed

In the aftermath of the 9/11 attacks, the Appraisal Institute issued guidance to its MAI appraisers regarding the new challenges and limitations on rendering an opinion of real estate value in the wake of a disaster when markets are unstable or chaotic[1].  The Appraisal Institute identified the specific issues and assumptions that affect the appraiser’s ability to employ accepted standards and practices of valuation, going so far as to advise its MAI members that they should not accept assignments that require “competency beyond that of a real estate appraiser,” id., essentially saying that there can be so much uncertainty that MAI appraisers could not render an opinion compliant with accepted standards.  Given that Bankruptcy Courts require credible and admissible evidence of value at several stages of the Chapter 11 process, the absence of persuasive and credible evidence of value means that the party with the burden of proof on the specific valuation issue will fail to carry its burden and should be denied whatever relief  or outcome that  is being sought, perhaps affecting the outcome of the entire Chapter 11 case.  This article summarizes the challenges faced by bankruptcy judges and practitioners in this post-COVID-19 climate of uncertain real estate values.
Continue Reading Post-COVID-19 Appraisals And The Burden Of Proof In Bankruptcy Cases

Among the only certainties for the post-COVID lending world is the uncertainty of commercial real estate values.  Among the classes of real estate that surely will be immediately diminished in value are hospitality and most brick and mortar retail, but even the value of industrial and office properties will be closely scrutinized as questions are posed regarding changes in how companies conduct their businesses and which types of businesses will recover most fully.  Ignoring the obvious challenges faced by hotels, stores, movie theaters and restaurants, will office buildings ever re-fill with white collar workers after they have demonstrated an ability to work remotely?  Which factories will spring back to full productivity, and how will the demand for work space change?  And most fundamentally to real estate lenders and investors, what will happen to rental and sale values in the face of this uncertainty?  These questions will have an immediate impact on the Chapter 11 process and will provide opportunities for business debtors to drastically reduce and modify liabilities secured by real estate.  Real estate lenders in turn may have to resort to the often-misunderstood provisions of the Bankruptcy Code found in Section 1111(b) dealing with under-secured real estate loans.   
Continue Reading Election Time: Bankruptcy Code 1111(B) in the Post-COVID World