In this part two of our discussion of the foreclosure process on commercial real estate in Louisiana, we are demystifying the procedures involved in executory process foreclosures in Louisiana. While Louisiana does not allow non-judicial foreclosure options for creditors, it does provide a streamlined judicial process known as executory process foreclosure, allowing a creditor to get to a sale of the property within 75-120 days of filing the petition, in most instances.
For a creditor to utilize executory process under Louisiana law, it must possess certain loan documents. Specifically, the mortgage must contain a confession of judgment of the indebtedness and must be in authentic form (i.e., executed before a notary and two witnesses). Additionally, subject to a few exceptions, the creditor must have the original promissory note or other evidence of debt that is secured by the mortgaged property. If the borrower is a legal entity, such as a corporation or limited liability company, the creditor must have (or locate) a proper written authorization for the individual who executed the documents to act for the borrower entity.
After the preparatory work has been done, an executory process foreclosure lawsuit begins with the filing of a verified petition that includes the original note, authorization, and a certified copy of the mortgage as attachments. The petition is processed on an expedited basis and an order directing the sheriff to seize and sell the property can be issued in a matter of days. The parish clerk of court will issue a writ of seizure and sale that directs the sheriff to seize and sell the property at issue to satisfy, in whole or part, the creditor’s debt.
The sheriff’s office will constructively seize the property by filing a notice in the parish property records and will proceed to advertise and sell the property. Notice of the sale must be provided to all individuals and entities who may have an interest in the property. Many sheriff’s offices will ask the creditor to assist in cancelling any liens and encumbrances that should not remain on the property prior to the sheriff’s sale and/or prior to any deed being issued.
Many seizing creditors decide to sell the property with appraisal, which will preserve any deficiency rights against the debtor and any guarantors post-sale. This requires both the creditor and debtor to provide an appraisal of the property to the sheriff’s office. Should any party fail to appoint an appraiser, the sheriff’s office will appoint one on their behalf. The bidding at the sheriff’s sale will open at two-thirds (2/3) of the appraisal value of the property for a sale done “with appraisal.”
At the sale, the creditor is allowed to “credit bid” up to the amount of its debt, which amount will be provided by the creditor prior to the sale date. Should the creditor be the winning bidder for the property, the creditor will be required to pay a 3% commission to the Sheriff in cash, plus certain fees and costs of the sale, as well as any unpaid property taxes. Should a third party be the winning bidder, the sheriff’s commission and fees, as well as any unpaid taxes, will be deducted from the sale proceeds prior to a check being issued to the creditor.
If there are no bidders at the sale, the creditor may ask the sheriff’s office to reset the property for sale. At a second sale of the property, the opening bid will start at the sheriff’s costs and fees instead of at two-thirds (2/3) of appraised value.
An attorney experienced with Louisiana’s executory process foreclosure laws and procedures will be able to help a creditor determine if foreclosure via executory process is possible. Kean Miller works with lenders, servicers, and law firms from across the country on workouts, foreclosures, dation en paiement (read “deed in lieu”), note sales, and commercial bankruptcy cases. We would be glad to talk with you about how we may be able to help with your distressed credit situation.