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Managing Property Managers — A Guide for Lenders

Lenders are frequently confronted with questionable lender-liability claims not only from borrowers (usually in connection with collection or foreclosure procedures) but also from property managers unable to recover from borrowers. Claims property managers assert directly against lenders include those for breach of oral or written contract, fraud, and unjust enrichment (particularly if the lender has foreclosed its interest in the borrower’s property). Lenders can hedge against the risk of claims by property managers through a variety of methods, both pre- and post-borrower default.

 

As part of origination (or any subsequent review of the borrower’s property management agreement), the lender should ensure that the property management agreement clearly defines that the property manager can turn solely to the borrower for satisfaction of the property manager’s fees and expenses. Thorough property management agreements will also cap expenses the property manager is allowed to incur absent approval, which can help avoid successful

Voidable If Not Fraudulent — NCCUSL Approves the Uniform Voidable Transactions Act

In July 2014, the National Conference of Commissioners on Uniform State Laws (NCCUSL) approved the Uniform Voidable Transaction Act (UVTA), a long-awaited update to the Uniform Fraudulent Transactions Act (UFTA). As the new title suggests, the UVTA, like the UFTA before it, encompasses a broader range of transactions than those traditionally deemed fraudulent and therefore avoidable under the common law. The amended Act clarifies and expands the burden of proof as well as presenting new challenges and opportunities to creditors seeking to avoid transfers by debtors operating under insolvent conditions. This development also has importance for creditors with claims in bankruptcy due to the bankruptcy trustee’s power to bring avoidance actions based on state law under 11 U.S.C. § 544(b) and thereby increase the assets available to repay debts.

Under the amended Act as before, creditors bringing constructive fraudulent transfer claims have the ability to avoid transactions which deprive the

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