62 Pages Posted: 13 Jan 2014 Last revised: 23 May 2014
Date Written: January 12, 2014
In surveying the landscape of contemporary American real estate, it is increasingly difficult — if not impossible — to find a development that is not part of a common-interest community. Whether one is strolling through the avenues of a mixed-use commercial development or driving down the manicured tree-lined streets in a residential neighborhood, a complex and detailed legal regime underpins these developments in order to ensure that the order, quality, and aesthetic of the project is ensured and maintained from its earliest days and long into its future.
Since its inception in the early 1900s, the complexity of common interest communities has grown tremendously, particularly through the increasing emergence of mixed-use and non-traditional developments. But, as might be imagined, these complex and highly sophisticated developments require large amounts of capital. Real estate lending — which has for most of its history been tied to more traditional types of residential or commercial developments — has had to morph and evolve in order to fit the needs of the ambitious developers of these complex common interest communities.
And like all lenders, a primary concern in assessing whether a loan for a common-interest community has merit involves evaluating what type of collateral is available to secure the debt. Common interest communities provide a very unique type of asset — the declaration of covenants, conditions, and restrictions (the "CCRs"). CCRs provide the legal mechanisms which allow the developer — and later the owners’ association — to exercise control over the project. And importantly, these declarations serve as an ample form of collateral to guarantee that the lender, upon foreclosure, is able to continue to ensure that the asset maintains its quality and value until a third party buyer can be procured. As such, many lenders have come to require that the developer grant a security interest in the CCRs. But while many common law jurisdictions throughout the country have dealt with the notion of collateralizing CCRs — as well as what liabilities arise for the lender in connection with their foreclosure — Louisiana law is fairly silent. Can CCRs be used as security in Louisiana, and, if so, how would a Louisiana court address the successor liability of lenders who don the mantle of the declarant? This Article explores the multi-faceted nature of CCRs under Louisiana’s civil law and statutory system and analyzes how Louisiana’s various security devices interface with CCR collateral. Further, this Article discusses the potential successor liability of lenders who foreclose on CCR declarations, and, in turn, advocates for the adoption of a comprehensive and uniform statutory framework for all types of common interest communities in Louisiana.
Keywords: Covenants, CCRS, building restrictions, property, comparative law, civil law, common law, mortgages, UCC article 9, uniform commercial code, security devices, secured transactions, contracts, obligations, debt, financing, real estate, secured lending, banking, common interest communities
Suggested Citation: Suggested Citation
Odinet, Christopher K., The Perils of Primacy: Successor Liability for Lenders Turned Declarants in Louisiana Common Interest Communities (January 12, 2014). 74 Louisiana Law Review 777 (2014). Available at SSRN: https://ssrn.com/abstract=2378095