Controlling owner or partner of closely held company buys out interests of non-controlling owners who subsequently sue for damages raised for example by the general partner of a real estate limited partnership who misled the limited partners into selling him their interests at a price far below market value. It can be argued that damages can be calculated as the difference between the actual sale price and the value of the asset or interest at the time of the trial or at the time of the transaction at issue.

Sidney Turner

www.SidneyTurnerllc.com

Let us also assume that the lender has negotiated a security agreement that gives it full rights to take over the LLC upon default. In order for the lender to take ownership of the LLC units, the lender must foreclose on its security interest through one of two processes detailed in the UCC.

Possible Barriers and Drawbacks.

For a lender who has a security interest in LLC units, the borrower’s right to vote on business matters involving the LLC and/or to manage the LLC is very important. If the borrower defaults, a lender may want to control the LLC via the borrower’s voting or management rights. A careless lender or third-party purchaser of the LLC units may only get a financial distribution right instead. Florida law, for example, provides that an assignee of LLC units has no right to participate in the management of the business and affairs of the company, or to exercise any rights or powers of the members, unless the operating agreement provides otherwise.

Even if the operating agreement allows the assignee (in our case, the lender) to exercise rights and powers of a member, the assignee cannot manage the LLC until either all non-assigning members approve of the transfer of management power or the procedure for complying with the transfer of management responsibilities, as stated in the operating agreement, is followed.

As a general rule, it is essential that the lender understand its options under the UCC, compare the benefits of each option, and act promptly upon default. A secured lender that fails to do so jeopardizes its basic remedies under the UCC for a default on a loan secured by LLC units.

Some homeowners in the struggling economy who have found that falling real estate prices have brought the value of their homes lower than the mortgage debt that they owe on their property, known as “underwater” mortgages, have responded to this unusual situation by simply trying to cancel their mortgages and move into more affordable homes.

Many of the debtors who choose to default on home mortgages don’t seem to consider or even realize many of the consequences of this action, especially that they are still responsible for paying the balance of their mortgage even in cases of default and that they cannot simply walk away from their obligations. They are liable to legal action from their creditors if they do not make their payments while actually having fewer legal options than some other debtors.

The threat of legal action is only one of several possible ramifications debtors face for voluntarily defaulting on a mortgage; other adverse affects include ruining their credit and facing the possibility of being forced into filing for bankruptcy to escape their obligations. If you would like to learn more about the issues related to “underwater” mortgages and homeowner’s options please refer to http://online.wsj.com/article/SB125902556993561567.html and if you have any questions or want additional information please visit us at Sidney Turner, LLC.