In this final part of our discussion of the foreclosure process on commercial real estate in Louisiana, we are detailing the procedures involved in foreclosing on property in Louisiana utilizing federal court mechanisms. Similar to ordinary process foreclosures, foreclosure in federal court involves instituting a lawsuit against the mortgagor asking that the court recognize that the indebtedness is due and that the mortgage grants the creditor a valid lien on the mortgaged property.

To file a foreclosure suit in federal court, the creditor must show that the citizenship of the creditor and defendant are diverse and that the amount due to it is in excess of $75,000.00 exclusive of interest and costs. The federal lawsuit would proceed as any normal suit would proceed, requiring service of the complaint on the defendant and allowing the appropriate delays for the defendant to respond. Like the state-court ordinary process lawsuit, the suit will proceed through the discovery process through either summary judgment or a trial on the merits.

Additionally, federal procedural laws allow the federal court to utilize state court laws. As such, the creditor can request that the property be sequestered (i.e., seized during the pendency of the suit) and a keeper be appointed. This allows the creditor to take advantage of Louisiana pre-judgment seizure mechanisms.

Similar to the state court process, once a final judgment has been rendered and all appeal delays have expired, the creditor would request that that judgment be made executory and would file a motion requesting that the Court to allow judicial sale of the property and establishing sale procedures. The order granting the sale will establish the process which the creditor and United States Marshals Office will follow for the sale of the property.

Counsel for the creditor will work closely with the Marshals Office to ensure the sale procedures are followed. Federal law, like state law, requires that the property be advertised for sale in a local newspaper prior to the sale date. A creditor may choose to have the sale occur with or without appraisal. If the sale is with appraisal, the creditor and defendant will each submit an appraisal to the Marshals Office, which will determine the opening bid for the property.

Like other foreclosure methods, the seizing creditor must provide notice of the U.S. Marshal’s sale of the property to all interested parties with a potential interest in the property. During the public auction by the Marshals Office, the creditor may credit bid on the property, up to the amount of its debt. A successful creditor will be required to pay the Marshal’s commission and any costs of the sale before the deed will be issued.

Unlike state court foreclosures, the Marshal’s commission can be significantly less depending on the value and final sale price of the property being sold. After the first $1,000 in sale proceeds, the Marshal is entitled to a commission of 1.5% of the sale price, with a maximum commission of $50,000.00. The cap can provide significant value to a creditor with high value collateral. An experienced lawyer can review a creditor’s loan documents to determine if federal court foreclosure is an appropriate mechanism to seize and sell collateral property. 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.