Friday, September 18, 2015

Acquiring Distressed Assets in UCC Foreclosure Sales

Image Source: Wikipedia
In the field of distressed asset acquisition, Uniform Commercial Code (UCC) foreclosure sales offer a number of advantages for buyers. As long as the transaction involved is “commercially reasonable,” Article 9 of the UCC enables lenders to sell collateral after the borrower’s default, using any terms and time table. As a result, all assets acquired at a UCC foreclosure sale will transfer to the buyer without first-lender liens or junior liens.

While UCC foreclosures represent an optimal acquisition strategy, it is important that buyers perform due diligence of all assets and processes in the transaction. Even in transactions involving a cooperating distressed company, buyers rarely receive warranties or representations on assets. In addition to performing due diligence on those assets, buyers typically ensure that they will gain the benefits from the sale and that the sale will proceed in a predetermined manner. Furthermore, due diligence of a distressed company’s real estate arrangements and trade liabilities can further elucidate the financial implications of assets acquired in a UCC foreclosure sale.