Commercial Foreclosure Defense: Options for Businesses in South Florida

While facing commercial foreclosure can present significant financial and legal risks, businesses targeted in commercial foreclosure actions will often have strong defenses available. There are several potential defenses to foreclosure under Florida law; and, if your business’ lender has initiated a foreclosure action, an experienced Miami real estate attorney can determine what defenses your business can use (if any) to protect its real property.

Even if your business doesn’t have defenses available that are likely to prevent foreclosure, you may have other options for dealing with your business’s lender—and potentially its other creditors as well. In addition to discussing common defenses to commercial foreclosure actions in South Florida, this article also covers some of these other options.

5 Examples of Potential Defenses to Commercial Foreclosure

How can your business defend against a pending foreclosure action? Here are five examples of potential defenses to commercial foreclosure in South Florida:

1. Lack of Notice and Opportunity to Cure

Commercial real estate loans often require that lenders give notice before initiating foreclosure proceedings. Frequently, these notice provisions include specific requirements as to both timing and format, and borrowers will typically have an opportunity to cure payment defaults as well. If a commercial lender initiates foreclosure proceedings without providing adequate notice and opportunity to cure, this can provide a defense to foreclosure. Even if the business isn’t able to pay, asserting this type of procedural defense can delay the foreclosure proceedings and provide leverage for out-of-court negotiations.

2. Lack of Standing

To file a foreclosure action, a lender must have the legal standing to do so. Among other things, this means that the lender must be able to establish that it owns the loan at issue. Lenders regularly buy and sell commercial loans. If the lender pursuing foreclosure against your business’s real property either (i) didn’t yet own the loan when your business allegedly defaulted, or (ii) sold the loan before filing for foreclosure, it may lack standing to seek legal or equitable remedies in court.

3. Statute of Limitations

Under Florida’s statute of limitations, lenders have five years from the date of default to initiate a foreclosure action in most cases. If a lender fails to initiate a foreclosure action before the statute of limitations expires, it will lose its right to do so. However, as each individual default can provide a new cause of action, this defense will only be available in limited circumstances.

4. Usury or “Unclean Hands”

Commercial borrowers can also avoid foreclosure in some cases by asserting the defense of usury or “unclean hands.” Essentially, this involves alleging that the lender charged an unreasonably high interest rate or otherwise shares responsibility for the borrower’s default. For example, if a lender assists a business with obtaining an increased loan amount by inflating its income on its loan application, this may prevent the lender from pursuing foreclosure.

5. Fraudulent Inducement

Lenders can also be barred from pursuing foreclosure actions based on fraudulent inducement. If a lender makes misrepresentations or omits material information during the pre-loan process—and if a business relies on these misrepresentations or omissions in deciding to borrow—then the business may be able to assert fraudulent inducement as a foreclosure defense.

While these are all examples of potential defenses to commercial foreclosure actions in South Florida, the defenses that are available in any particular case will depend on the specific terms of the loan and other circumstances involved. As a result, to ensure that you are making informed decisions, you will need to discuss your business’s pending foreclosure action with an experienced Miami real estate attorney.

Other Options for Avoiding Commercial Foreclosure   

Along with defending against their lenders’ foreclosure actions in court, businesses that are facing commercial foreclosure in South Florida will often have other options available as well. For example, if your business is struggling financially, you may be able to avoid foreclosure by:

• Renegotiating Your Business’ Loan – In many cases, it will be in both parties’ best interests to renegotiate a struggling business’s commercial real estate loan. Pursuing foreclosure is costly, and lenders will often prefer to renegotiate rather than go through the foreclosure process. If renegotiating your business’s loan is an option, this could be the best and most cost-effective way to move forward.
• Filing for a Small Business Bankruptcy – Another option for struggling businesses is to pursue a small business bankruptcy. Typically, this means filing under Subchapter V of Chapter 11. Filing for bankruptcy automatically stays creditors’ collection efforts (including efforts to foreclose), and it provides the opportunity to restructure the business’s debts so that it can effectively manage its financial obligations going forward.
• Equity Infusions and Other Options – In addition to renegotiating with your business’s lender and pursuing a small business bankruptcy, you may have a variety of other options if your business is struggling to pay its debts as they come due. These can include everything from injecting equity into the business to restructuring the business’s operations in order to reduce its monthly operating expenses.

Ultimately, if your business is facing commercial foreclosure, determining the best path forward will require a careful and thorough assessment of all viable options. An experienced Miami real estate attorney can help, and hiring an attorney to guide your business forward can be the least costly option in the long run. Importantly, when facing foreclosure, unnecessary delays can lead to unnecessary consequences. So, if your business needs help avoiding foreclosure or finding other means of financial relief, you will want to speak with an attorney as soon as possible.

Schedule a Confidential Consultation with a Miami Real Estate Attorney

Our attorneys help business owners make informed and strategic decisions about foreclosure, bankruptcy, and other corporate and financial matters. If your business is facing commercial foreclosure in South Florida, we encourage you to contact us for advice. To schedule a confidential consultation with a Miami real estate attorney at Edelboim Lieberman, please call 305-768-9909 or tell us how we can reach you online today.