Structured Lending and Securitizations

What are structured lending and securitizations?

Structured lending and securitizations are innovative financing methods that parties often use in Florida real estate transactions. Structured lending refers to customized financing solutions tailored to the borrower’s unique needs, often involving multiple tranches of debt or equity. On the other hand, securitization involves pooling assets, such as mortgages, and converting them into marketable securities available to investors. These financial instruments help real estate developers and property owners access capital while providing investors diversified investment opportunities.

For example, a real estate developer in Florida may use structured lending to finance the construction of a multi-family property. The developer might obtain a senior loan, mezzanine financing, and equity financing from different sources. Once the property is operational, the developer could securitize the rental income, creating mortgage-backed securities (MBS) to sell to investors. This process allows the developer to access funds for future projects while providing investors with a steady income stream.

Need help with creating, structuring, or enforcing real estate transactions? Schedule your consultation today with a top real estate transactional attorney.

Which Florida laws, rules, and regulations apply to structured lending and securitizations?

Several Florida and federal laws, rules, and regulations govern structured lending and securitizations in real estate transactions. For example, the Florida Uniform Commercial Code (UCC) outlines rules for secured transactions, while the Florida Mortgage Brokerage and Lending Act regulates mortgage brokers and lenders.

At the federal level, the Securities Act of 1933 and the Securities Exchange Act of 1934 govern the issuance and trading of securities, including those derived from securitized real estate assets. Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act introduces regulations for asset-backed securities, aiming to increase transparency and protect investors.

What common issues associated with structured lending and securitizations lead to litigation?

The following issues tend to escalate transactional disputes to litigation:

• Breach of contract: Parties may fail to fulfill their obligations under loan agreements, security agreements, or other contracts related to structured lending and securitization transactions.
• Misrepresentation or fraud: Misleading or fraudulent statements made during the negotiation or implementation of structured lending and securitization deals can lead to legal disputes.
• Regulatory compliance: Failure to comply with federal or state regulations governing structured lending and securitizations, such as the Dodd-Frank Act, may result in litigation.
• Disputes over asset valuation: Disagreements over underlying asset value in securitizations can lead to conflicts among parties involved in the transaction.
• Lender liability claims: Borrowers may sue lenders for alleged misconduct or unfair lending practices related to structured lending transactions.
• Bankruptcy: If a borrower files for bankruptcy, disputes may arise over the treatment of securitized assets and the rights of secured creditors.

When a set of facts is appropriate for legal advocacy or intervention, 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 to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation or another form of specialized advocacy, please contact our office to set up your initial consultation.

What are strategic measures to resolve issues and avoid litigation over structured lending and securitizations?

• Conduct thorough due diligence: Investigate the financial stability and creditworthiness of borrowers and other parties involved in the transaction to avoid potential disputes.
• Draft clear and comprehensive agreements: Ensure that all contracts related to structured lending and securitizations are well-drafted, unambiguous, and accurately reflect the parties’ intentions.
• Implement robust compliance programs: Establish internal policies and procedures to ensure compliance with federal and state regulations governing structured lending and securitizations, such as the Dodd-Frank Act.
• Regularly monitor asset performance: Keep track of the performance of securitized assets and promptly address any issues that may arise.
• Maintain open lines of communication: Foster clear and open communication among all parties involved in the transaction to address potential disputes before they escalate.
• Seek alternative dispute resolution: When conflicts arise, consider mediation or arbitration as an alternative to litigation to resolve disagreements more quickly and cost-effectively.

Please contact our office to set up your initial consultation to see what forms of legal advocacy or intervention may be available for your unique situation.

Frequently Asked Questions

1. What is the role of credit rating agencies in structured lending and securitizations?

Credit rating agencies evaluate the creditworthiness of structured lending and securitization deals, assigning ratings to securities based on the risk associated with the underlying assets. Investors rely on these ratings when making investment decisions. As a result, accurate ratings help ensure the stability of the securitization market and protect investors from potential losses.

2. How do Florida’s usury laws impact structured lending and securitizations?

Florida’s usury laws cap the interest rates lenders can charge on loans. Structured lending and securitization deals must comply with these laws to avoid legal challenges. Failure to comply may lead to penalties, unenforceability of loan agreements, or damages awarded to borrowers.

3. What is the difference between asset-backed securities (ABS) and mortgage-backed securities (MBS)?

ABS are financial instruments backed by a pool of non-mortgage assets, such as auto loans, credit card receivables, or student loans. A pool of mortgage loans, including residential and commercial mortgages, supports MBS. Both ABS and MBS are types of securitizations.

4. How does the Truth in Lending Act (TILA) apply to structured lending and securitizations in Florida?

The Truth in Lending Act (TILA) requires lenders to disclose important information about loans, such as interest rates and payment terms, to borrowers. In structured lending and securitization transactions involving consumer loans, TILA ensures borrowers receive accurate and transparent information about their loans, helping to avoid disputes and litigation.

5. Can a borrower sue a lender for predatory lending practices in a structured lending transaction?

Yes, borrowers can sue lenders for predatory lending practices in structured lending transactions. Predatory lending includes deceptive, unfair, or abusive lending practices that exploit borrowers. Examples include excessive fees, inflated interest rates, and loan flipping. If a borrower can prove that a lender engaged in predatory lending, they may be entitled to damages or other remedies under Florida or federal law.

Have more questions about real estate transactions and disputes?

Crucially, this overview of structured lending and securitizations 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 tireless advocates at every step. 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 schedule a consultation.