Foreclosure proceedings in Louisiana can be challenging for lenders and servicers not familiar with the Bayou State’s particular procedures. This blog post provides a brief introduction to Louisiana’s foreclosure process focused on mortgaged commercial or industrial property.
First and foremost, Louisiana is a judicial-foreclosure state. The foreclosing creditor must request and obtain a court order authorizing the seizure and sale of the mortgaged property before the foreclosure sale can happen. If the mortgage allows for foreclosure by executory process, the order authorizing a foreclosure sale on that mortgage may be issued within days of a foreclosure petition being filed. A later blog post will discuss the differences between “executory process” and “ordinary process” foreclosures in Louisiana. Louisiana does not allow a foreclosure sale to occur without some judicial process.
Second, in addition to a judge, Louisiana foreclosure procedure also involves participation from local law enforcement. The Sheriff for the parish (read “county”) where the immovable property and improvements are located must constructively seize the property and post public notices about the seizure and the scheduled sale date. (In Louisiana, the proper legal name for real estate that can be encumbered by a mortgage is “immovable property.” Tangible things that can generally be encumbered by a security agreement and a UCC-1 are called “movable property.”)
The Sheriff and the foreclosing creditor’s attorney will both work to ensure that the required notices are posted, advertised in the newspaper, and sent to all Mennonite notice parties before the foreclosure sale occurs. Having the Sheriff involved also helps to keep the peace during the entire process. In exchange for this work, the Sheriff is entitled to a commission equal to three (3%) percent of the price that the property brings at the foreclosure auction, called a “Sheriff’s sale” here. The foreclosing creditor can credit bid its debt at the Sheriff’s sale, but it must pay the Sheriff’s commission and all costs of the sale in cash before the Sheriff will convey title to the property.
For servicers contemplating foreclosure on commercial or industrial property worth millions of dollars, the prospect of a three (3%) commission, paid in cash, can be problematic. Sometimes lenders and servicers can reduce their out-of-pocket expense on an already-non-performing loan by filing the foreclosure lawsuit in federal court instead of state court. The U.S. Marshal’s Office, not the local Sheriff, will oversee the foreclosure process arising from a foreclosure a lawsuit filed in federal court. The U.S. Marshal’s commission is calculated at one and one-half (1.5%) percent of the sale price (after the first $1,000 of sale proceeds), and is capped by federal regulation at $50,000. See 28 CFR § 0.114(h). There are pros and cons to filing a foreclosure lawsuit in federal court instead of in state court. A later blog post will discuss the procedures for foreclosures in federal court in Louisiana.
An attorney experienced with Louisiana’s foreclosure laws and procedures will be able to help a servicer determine if a federal court foreclosure is possible, and if federal court may be a better path than state court in light of the particular property, borrower, and loan documents involved, among other considerations. Kean Miller works with lender, servicers, and law firms from across the country on workouts, foreclosures, dation en paiement (read “deed in lieu”), note sales, and commercial bankruptcy cases.