Editors’ Note: this is part of our irregular series in which we answer readers’ questions. If you have a question, submit it to info@dailydac.com and we will try to answer it.

QUESTION:

Scott T,  emailed, asking, “I have a client who owns a few income-producing properties and she thinks she may not be able to make her next mortgage payments to her lender. What should I tell her to expect?”

ANSWER:

Once a default occurs or is looming, a proactive mortgage lender should be expected to review several factors surrounding property management. If a third-party manager is involved, the lender will want to determine whether any lien rights arise in favor of this manager, including in connection with any leasing activities for the project. The lender is likely to want to get a handle on how cash comes in and how it is disbursed. Agreements with in-place property managers are crucial in workouts involving income-producing properties. You should look into the law of your local jurisdiction, as a lender facing a loan default where the property is generating income is armed with some significant tools, often including the ability to appoint a receiver.

Note: This 90 Second Lesson is based, in substantial part, in material reprinted from Commercial Bankruptcy Litigation 2d and Strategic Alternatives for and Against Distressed Businesses, with permission of Thomson Reuters. For more information about these publications, please visit www.legalsolutions.com.