That's the case with the Chatsworth, Calif., CU's most recent scenario involving a Florida shopping center. Telesis filed a breach of contract claim against International Shoppes LLC and Abdul Mathin on Nov. 2. in Florida Middle District Court. The $11.1 million shopping center's loans are currently in a receivership process, according to the $530 million credit union. Telesis is the majority owner of Business Partners LLC, a business lending CUSO servicing more than 180 CUs. The property is not likely to be acquired by the lender through foreclosure as the borrower is actively working on a resolution and no foreclosure proceeding has been initiated at this point, Telesis told Credit Union Times.
Seeking a state-court appointed receiver is just another loan resolution to avoid foreclosures, said Loren Houchen, chief operating officer for Business Partners. Receivership cases may be initiated as stand-alone processes or as an initial step in a potential foreclosure process, she explained. The receivership process would provide greater operating control of the property operations and cash flow while the borrower and receiver may proceed with a property sale to pay off the loan in full, Houchen said.
"Telesis Community Credit Union has properties in the process of foreclosure but has not taken title to those properties," Houchen said. "In many cases, we anticipate that the loans will perform during receivership or will exit bankruptcy with a plan of reorganization in applicable foreclosure cases with a favorable resolution for the lenders and the borrowers."
The CU is also working to settle a $6.8 million Oregon property loan for an office building. The case is currently in bankruptcy and has not yet been acquired by the lender because the bankruptcy process puts the foreclosure on hold, Telesis said. Still, the CU said that "Telesis utilizes aggressive default techniques and has filed a deficiency action against the loan guarantor."
According to NCUA call report data, Telesis had $250 million in real estate loans reported as business loans as of Sept. 30. Total delinquent member business loans, counted as those over two months past due, were nearly $16 million.
Houchen said if a borrower stops making loan payments, Telesis, like other lenders across the country, may file a notice of default to begin a multistep foreclosure process that protects the lender's rights while resolving that delinquency. That process provides time for borrowers to cure loan delinquencies, sell the property to pay off the loan, restructure the loan with the lender or otherwise resolve the problem without the lender ever having to take title, she said. Borrowers may also file bankruptcy to prepare a plan of reorganization to get the loan performing again.
"Lenders typically prefer to work out loan defaults to get the borrower to return to performing loan status instead of acquiring the loan collateral through foreclosure," Houchen said.
Jean Faenza, executive vice president of Telesis and president/CEO of Business Partners, echoed how the receivership phase is not the end of the road for property owners.
"As indicated by the loans we have in varying stages of legal action, initiation of the notice of default to start the foreclosure process does not automatically mean that the properties will be acquired by the lender through foreclosure," Faenza said.
Since Telesis has been in the member business lending and commercial real estate market since 1992, Faenza said the CU has seen many economic cycles and can move within the unique needs of each of its loans and property performances. In the workout phase, the nature and complexity of these loans extends the settlement and workout period.
An example of a current workout scenario involved a group of three health care facilities loans located in Tennessee. Those properties were put in bankruptcy to put the foreclosure process on hold and are currently being restructured under plans of reorganization for the benefit of the lender group and borrowers with no losses anticipated for the lenders, according to Telesis.
"No credit union lender is insulated in today's economic times," Faenza said. "It is the job of the credit union to work diligently towards assisting their borrowers while minimizes losses for the credit union membership. We are confident that there will be many stories to tell at the end of this cycle and believe that many of them will be good stories."