United States: Six Tips For Lenders Foreclosing A Shopping Center

Shopping centers across the country still face significant financial struggles as a consequence of the recent recession, the increasing market share of online retailers, and the relatively high price of gasoline.

The drop in traditional retail shopping in the last few years has caused the bankruptcy and liquidation of many retail stores, including several big-box chains, leaving shopping malls struggling to fill vacancies.

Source: Colliers International

According to a recent report published by Green Street Advisors Inc. and an article titled "Distressing Signs for Maryland Mall," which was published in The Wall Street Journal, six of the largest mall owners in the country have forfeited at least 20 malls to lenders or sold them under pressure since 2009.

If you are a lender foreclosing a mall or shopping center, you will often face unique issues not presented by other types of property. Failure to anticipate these issues could cause problems, either during the foreclosure process or when marketing the center for resale following foreclosure.

To that end, several members of the Distressed Real Estate Solutions Practice Group at the Orlando-based law firm of Lowndes, Drosdick, Doster, Kantor & Reed, P.A. (specializing in such areas as creditor's rights and bankruptcy, commercial foreclosures and workouts, land use and zoning, real estate development and finance, and commercial lending) have compiled these top 6 tips to consider when foreclosing on a mall or shopping center.

1. Rents — Send the borrower a written notice demanding the rents as soon as possible after a default occurs under the loan. Under Florida statutes, for example, this demand triggers the lender's interest in the rents and the lender's right to control the use of the rents.

2. Tenants and rent roll — Review the current rent roll to determine if you wish to foreclose and evict any existing tenants, perhaps because their rent is below market rates, or they are significantly delinquent in paying their rent, or they are otherwise undesirable tenants. This can be accomplished if a tenant's lease was signed after your mortgage was recorded, or was subordinated to the mortgage.

Some tenants' leases include provisions allowing the tenant to terminate if an anchor tenant's store closes. Many anchor tenants' leases preclude competing uses in the shopping center. An analysis of both the rent roll and the tenants' leases will enable you to make informed decisions during the foreclosure process.

If you cannot obtain a current rent roll, leases or other necessary information from the borrower, you can file a discovery request for it when the foreclosure lawsuit commences.

3. Due diligence — Assemble evidence to present to the court for the possible appointment of a receiver. For example, take pictures of the condition of the shopping center and note where it may be in disrepair. Document evidence of any code violations and investigate whether adequate insurance exists or should be obtained.

Longer term, once a receiver is in place, think about what a future purchaser will investigate during its due diligence period, and whether there is anything you can do to limit a future purchaser's concerns and thereby enhance the resale value of the property.

For example, there may be deferred maintenance issues involving the retail building or common areas. These can detract from the center's appearance, cause the loss of desirable tenants and reduce the center's value to a potential purchaser.

Code violations may result in accrual of daily fines. Sometimes such fines are secured by county or municipal liens that are superior to your mortgage, in which case it may be worthwhile for you to cure the violations, advance the funds needed to pay the fines and add the amount of the advance to the debt being foreclosed.

While considering or conducting a foreclosure, investigate the center in a manner similar to a prospective purchaser, with a view toward solving as many problems during the foreclosure as is economically feasible.

4. Entitlements — If the center is not fully developed, or if it is slated for redevelopment, determine what development entitlements exist and whether they "run with the title" to the property (meaning that a new owner will acquire them automatically when they acquire the property), or can be acquired as part of the foreclosure.

Properties within a Development of Regional Impact (DRI) zone, governed by Chapter 360 of the Florida statutes or governed by a Planned Development (PD) zoning ordinance, can present unique challenges.

Sometimes borrowers who develop large tracts of land obtain entitlements such as impact fee credits in the names of an affiliate as master developer. In such instances, entitlements may not be included in the description of the mortgaged property, and they don't necessarily run with the title to the property that is being foreclosed.

In addition, if the property is only a portion of the larger development, the master developer may have retained approval rights over redevelopment. These issues frequently take time to address, so it can be advantageous to do so early on.

If you wait until after the foreclosure is complete and you are the owner of the property, these issues may be more costly to address. You may end up carrying the property for longer, or taking a large price reduction when you resell it.

5. Status of title — In addition to performing the routine title search needed to foreclose junior liens and encumbrances, determine whether the center relies on any privately owned off-site improvements to provide access, drainage, parking or utilities to the mortgaged property. There should be appurtenant easements recorded for these purposes that benefit the center.

It is not uncommon for shopping centers to share such infrastructure with outparcels that are separately owned. In the economic boom that preceded the recession, it is surprising how many mortgage loans were made without lenders verifying that all necessary beneficial easements were in place and insured as part of the title to the mortgaged property.

Review any restrictive covenants, development agreements and similar documents affecting the title to the property to determine if there are any violations or other issues presented that can be cured. You can bet that a prospective purchaser will be doing so after the foreclosure.

Addressing these potential issues at the commencement of a foreclosure provides more time to solve them. A prospective purchaser is sure to pay less for the property if they have to fix these issues.

6.Taxes and Assessments — Unpaid real estate taxes and Community Development District (CDD) assessments can frequently be issues with distressed property. By state law, they constitute a first lien on the property and will survive a mortgage foreclosure (meaning that the purchaser will have to pay them after acquiring the property if they want to keep it).

Generally speaking, property that is subject to real estate taxes past due can be sold after two years following the date that the taxes became delinquent, and such a tax sale will extinguish the lien of any mortgage on the property. It is important, therefore, to keep track of the status of real estate taxes so that you preserve your ability to pay them to avoid the extinguishment of your mortgage.

If a center is subject to high amounts of past due CDD assessments, it may be that the value of the collateral after taking past due and future CDD assessments into account does not justify the lender acquiring that collateral.

In such a case, the lender may be able to negotiate a settlement with the CDD, whereby the CDD's bondholders (who funded the CDD's improvements by purchasing its bonds) accept less than or postpone what they are owed to pay down the bonds.

A current appraisal that takes CDD assessments into account can be important in assessing the lender's options.

Addressing these potential issues early on can maximize the resale value of the shopping center and shorten the time period required to dispose of your interest in the mortgaged property.

This will be beneficial whether you are selling your loan documents or foreclosure judgment, or completing the foreclosure and reselling the property. As the old adage goes, "a stitch in time saves nine."

A lawyer or law firm having expertise in these matters may be able to add significant resale value to a distressed shopping center.

Published in REBusinessOnline

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions