16/05/2024
Distressed real estate and enforcement procedure in the Netherlands
This is an overview provided by CMS setting out the enforcement of a mortgage granted over (commercial) real estate in the Netherlands. The current economic situation may lead to issues around (re)financing and access to affordable debt. Hiking interest rates have not only made borrowing more expensive but also required commercial mortgage lenders to increase their risk premiums and lending margins to reflect the higher uncertainty and default risk in the market. As a consequence, refinancing has become more difficult for commercial real estate investors, especially those with higher leverage, lower credit quality, or less diversified portfolios. Furthermore, decreasing valuation of properties may affect existing financing arrangements. Increased loan-to-value ratios and the risk of negative equity may result that lenders face losses if the sale proceeds are lower than the outstanding debt. Position of lenders in the commercial mortgage market
Position of lenders in the commercial mortgage market varies depending on their type, size, strategy, and exposure. Some lenders, such as banks, insurance companies, and pension funds, have more diversified and long-term portfolios, lower leverage, and stronger capital buffers, and may be more willing and able to restructure, continue, or extend loans to distressed borrowers. Other lenders, such as non-bank financial institutions, private equity funds, and securitization vehicles, may have more concentrated and short-term portfolios, higher leverage, and weaker liquidity positions, and may be more inclined or forced to foreclose or sell loans to recover their funds. Foreclosure of mortgages over real estate
Foreclosure of mortgages over real estate in the Netherlands can occur when borrowers default on their loan obligations and lenders exercise their legal right to foreclose the property to recover their debt. When an event of default occurs, as defined in the financing documentation, the mortgagee may exercise its right to accelerate the right of mortgage and as such initiate a forced sale procedure of the property via a public auction. The public auction procedures vary considerably in EU member states. Not only the legislation varies, but also the effectiveness and efficiency of the procedure. For instance, the Dutch procedure is particularly favourable as regards to flexibility, duration (an auction can take place within 90 days) and costs (these are average). Most enforcement sales occur at the request of the mortgagee. However, while being less common, an attachor can also request an enforcement sale of an attached property. In this article, we will further discuss the procedure in case of a public auction at the request of the mortgagee in the Netherlands. Steps and formalities Below is a schematic representation of the steps to be taken in a public auction:
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