Collecting Securitized Bank Loans

What are securitized bank loans, and how can a lender collect on them?

Bank loans may be secured or unsecured, depending on the borrower’s creditworthiness and the loan amount. Lenders do not seek collateral with the intent that it will constitute the sole source of repayment but rather to mitigate risk to the lender adequately. Bank loans may be secured by inventory, accounts receivable, motor vehicles, equipment, goods, real estate, or investment securities, amongst other assets. Securitized assets allow a lender to recover at least a portion of the principal loan amount if a borrower defaults.

The actions a lender may take under Florida law in the event of default are varied, and it can be challenging to decide which collection strategy is the most appropriate. Therefore, a lender should seek the advice of counsel before moving forward with the collection.

Need help with collecting securitized bank loans? Schedule your consultation today with a top accounts receivable and judgment collections attorney.

What legal issues typically arise related to collecting securitized bank loans?

The following disputes are among the most common in collecting securitized bank loans:

Determining if a default occurred: This may not be as simple as it initially appears. A borrower failing to make a payment is likely a default. However, other events may occur which are adverse to the lender’s interests. The loan agreement’s definition of “default” should reflect such adverse events. Examples include if the borrower files a bankruptcy petition, becomes insolvent, or if the borrower dissolves.
Acceleration: A lender may “accelerate” a loan upon a borrower’s default. In other words, the lender may demand payment of the loan in full. Importantly, acceleration is not possible if no acceleration provision is contracted explicitly in the loan agreement.
Disposal of collateral: Once the creditor takes possession of the securitized collateral, it may sell, lease or otherwise dispose of the collateral. Then, the creditor distributes funds from the collateral disposal to certain expenses and parties. First, they apply it to the costs of repossessing the property and preparing it for disposal. Second, they use the funds to satisfy the debtor’s indebtedness. Finally, any surplus funds must go to the debtor.

What are relevant laws related to collecting securitized bank loans in Florida?

Much of Florida law related to actions for collecting securitized bank loans comes from common law, or case law, based on the previous judicial decisions of Florida courts. For example, Florida courts can decide how to interpret a contract, whether and when an agreement will be enforced, and whether specific contract provisions are enforceable.

Statutorily, chapter 687 of Florida Statutes outlines the usury laws in Florida. Chapters 670 to 680 contain Florida’s Uniform Commercial Code, which is particularly relevant for securitized loans. In addition, the Florida Consumer Collection Practices Act and the federal Fair Debt Collection Practices Act govern consumer debt collection practices in Florida.

Finally, section 95.11 outlines the relevant statute of limitations. An action based on an oral contract must commence within four years. An action based on a written agreement must commence within five years.

What is required to collect a securitized bank loan in Florida?

The lender must prove that a default has occurred to collect on a securitized bank loan in Florida. Notably, Florida statutes do not define what constitutes a default. Therefore, the events that will constitute a default should be discussed by the parties and set in the note, security agreement, or other loan documents.

To bring an enforcement action based on a promissory note, the lender must prove, with some exceptions, that they are the note holder. A “holder” of a note is “[t]he person in possession of a negotiable instrument that is payable either to bearer or to an identified entity that is the entity in possession.” F.S. 671.201(21)(a). In other words, to be a holder, the instrument must be payable to the entity in possession or endorsed in blank.

When a set of facts is appropriate to meet the requirements to collect on a securitized bank loan, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path forward to seek appropriate remedies, such as:

Awards for Pre-Judgment Interest
Judicial Foreclosure
Levying of Liens
Repossession
Sale or Disposition of the Collateral
And Other Monetary Awards

To see what actions may be available for your unique situation, please contact our office to set up your initial consultation.

What are common defenses to claims for collecting securitized bank loans in Florida?

The primary defenses to collecting securitized bank loans in Florida include the following:

Estoppel: A pattern of accepting late payments may preclude a lender from declaring an event of default.
Statute of Frauds: The maker or drawer of an agreement must sign a promissory note for the agreement to be a negotiable instrument under Article 3 of the Uniform Commercial Code. Under Florida’s UCC, a person is not liable for an instrument unless they or their authorized representative signs it.
Statute of limitations: The defendant may argue that the statute of limitations, typically four to five years depending on the circumstances, bars the plaintiff’s claim.
Usury: A defendant may escape liability for all interest under a loan agreement if they show that the imposed interest rate was usurious.
Waiver: If a borrower tenders the payments due before the lender exercises the option to accelerate, the default can be “cured.” Actual acceptance of the tender by the lender is not necessary.

To see what defenses may be available for your unique situation, please contact our office to set up your initial consultation.

Have more questions about a securitized bank loan-related situation?

Crucially, this overview of collecting securitized bank loans does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to set up a consultation.