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Troubled Loans: Loans to Hotels Must Be Secured by Real and Personal Property

Some years ago, one of our bank clients called on us to help negotiate and restructure a loan against a boutique hotel in downtown San Francisco. The owner-operator was capable, but he was operating his hotel as if it was a block or two closer to Union Square. The Bank wanted to get tough with him, figuring that if push came to shove, it would file suit and ask for a receiver to be appointed.

When we first take on a deal, we make a quick but thorough review of the loan documents, deeds of trust, title reports and insurance, security agreements and UCC-1 financing statements, just to make sure things are the way they are supposed to be. After going through the loan documents, I noticed that there was no security agreement and no UCC-1 financing statement, so I asked our client for copies. Our client was a highly competent workout professional who, like me, was new to the deal, and she had also wondered about the security agreement and UCC-1.

A few hours later, she sheepishly returned my call and told me that the Bank had documented this loan to an operating hotel as if it was only a real estate loan. The Bank had failed to get a personal property security interest in the furniture, linens, equipment, inventory or TV sets. In other words, if the hotel filed bankruptcy or the Bank foreclosed, it would be stuck with an empty hotel, or faced with the prospect of purchasing all of the personal property in order to operate.

The discovery took a sharp arrow out of our quiver, and forced us to negotiate with a reluctant debtor, since court action would have resulted in a significant loss. Fortunately, times improved, the operator hired a consultant who made some constructive suggestions, and ultimately, the hotel’s cash flow improved and it was sold for an amount sufficient to pay off the Bank’s loan.

This is Dick Rogan, bank lawyer and author of, signing off for now. Join us again soon to check out what’s new in the World of Workouts.

Year after year, day after day, workout professionals in the know rely on JMBM’s Special Assets Team™ to handle problem commercial and real estate loans. Whatever problem loans you have, chances are, we’ve seen it. Give us a call.


Our Perspective. JMBM represents commercial banks, special servicers, private lenders, asset-based lenders, hard money lenders and factors. We help lender clients throughout the United States craft business and legal solutions to their commercial and real estate troubled loans. For more information, please contact Dick Rogan at, or (415) 398-8080.

Richard A. Rogan is Chair of the JMBM Special Assets Team™. He also serves as the co-managing partner of JMBM’s San Francisco office and co-chair of its Bankruptcy Practice Group.

JMBM’s Special Assets Team™ has represented hundreds of lenders in California and throughout the United States. We regularly appear in bankruptcy courts, district courts and superior courts. We are proud to serve as trusted counsel and advisors who look for a business solution and try to help lenders find the best possible resolution for each troubled loan. Whether a loan is being newly documented, restructured or litigated, JMBM’s Special Assets Team™ has the skill, know-how and experience to solve your problem in a practical no-nonsense way.

NOTE TO CONSUMERS: As a matter of Firm policy, JMBM does not represent individual consumers who have disputes with their lenders. Many lenders have specialized consumer workout professionals who have the time to help consumer borrowers. There are many fine attorneys who specialize in representing consumers. Individuals with consumer lending problems should contact a lawyer or law firm who specializes in consumer insolvency and bankruptcy in their local area. When in doubt, we suggest you contact your local bar association’s Lawyer Referral Service. [For example, see Bar Association of SF or LA County Bar Association Lawyer Referral Services]

JMBM does not provide legal advice to consumers, and cannot respond to consumer inquiries.