Evening star., 1939-09-09
Redemption Laws
Seen Completing
Settlements
Serious Problems
Thrust on Income
Property Managers

State mortgage laws WHICH pro.
vide redemption periods following
a foreclosure sale cause serious legal
and fiscal problems which hardly
could have been contemplated by
the legislators who framed the stat
utes, the Journal of Certified Prop
erty Managers points out in its
recent issue.
The laws, the magazine states,
lump together the tWo-person re-
lationship of debtor and creditor
common in the cases of mortgages
on homes and farms with the COM
pleX relationships existing for large
income properties where large num-
bers of security holders own small
amounts of mortgages totaling mil
lions of dollars. In the 20 or more
States where redemption period
exists managers of income proper
ties reorganized or in the course OF
reorganization are confronted with
special and serious problems.
When the mortgages or their
property at the foreclosure sale,
title to the property does not pass
until the expiration of period
fixed by statute. In most States
the length of this period ranges
from IL to "a months.
Steps Outlined.
Steps which should be taken by
managers of reorganized properties
and cautions in regard to legal COM
pleXities they must hold in mind
In fiscal and administrative control
of the property during the redemp-
ton period are set forth in detail in
the current issue of the journal,
published by the Institute of Real
Estate Management, professional
branch of the National Association
of Real Estate Boards.
John E. Cornyn and David Keith,
both of the staff of George Rosset-
ter & Co., Chicago, present step by
step the decisions the manager
must take, using Hypothetical
case but revieWig situations that
are encountered and decisions that
have to be met in thousands OF
cases in States where statutory re-
ptl ChlSl. oul-
line legal boundaries, accounting
problems and the like of the prop
erty manager of the "Claremont
Apartments" through reorganiza-
ton. in the critical step of fixing
the bid at the foreclosure sale, in
the complication presented by con-
tinuance of the receivership through
,>nyin1 knnoIJcn ,,f
the existence Of deficiency judg-
ment and through the point where
the title was transferred
Hair Line Decisions Needed.
Emphasizing the delicacy of man.
agement judgment required in de-
termining what the amount of the
bid should be on an income prop
erty at foreclosure sale, the writer's
say:
The bid price at the sale must
be sufficiently high to permit
reasonable recovery to the bond
holders in the event of a redemp-
ton. If the bid price is more than
the principal amount of the bonds
outstanding, the excess amount bid
may be considered as income tax
able to the bondholders, according
to a recent United States Supreme
Court decision. If the bid price is
made low to conserve the cash bal
ance available for payment of taxes,
and incidentally to reduce the cash
allocable to non-depositors, the sub
sequent basis of the property for in
come tax purposes, both for COM
putting annual depreciation and
comes fixed at an amount that may
prove disadvantageous to the bond
holders at later date"
The fact that an equity of re-
demption rests with the owner of
the equity, his transferees or as
signees or his judgment creditors
is a major consideration that must
be anticipated in determination of
the bid price as we'll as in the
whole management of the property
during the redemption period if a
receiver is in possession. One other
factor to be considered on the bid:
Where deficiency judgment has
been obtained as result of the
failure of the amount bid at the
foreclosure sale to satisfy the
amount of the debt, the interest of
the non-depositing bondholders in
the income of the property during
the period of redemption makes
possible strike suits" on the part
Of holders of very small propor-
tions of the outstanding obliga-
t1ons.