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In California and throughout the country a substantial number of people have found themselves saddled with adjustable rate mortgages that have reset to interest rates significantly higher than at loan origination. In many cases the borrowers cannot afford the new payment amounts. Also, in many cases, the borrowers really didn’t know what they were getting into.

It is a common, and not altogether inappropriate, reaction to such situations to think or say, “Too bad. You shouldn’t have signed something if you didn’t understand it.” But what if the borrower claimed that the documents are forged? Well, you’d think that would be an easy claim to refute, especially if the signatures were notarized.

But the forgery claim might not be as easy to dismiss as it appears. This is because forgery can occur even when the signature on the document is authentic. A recent opinion in the case of The People v. Paul Stephen Martinez (California Fourth Appellate District, Division Two) is instructive in this regard.

Defendant Martinez had offered to help Ruth Michiel when she ran into financial difficulty. She feared that two houses that she owned might go into foreclosure. At Martinez’s direction, Ms. Michiel signed a number of documents. Later, she discovered that a trust deed in the amount of $25,000 and secured by one of the properties had been recorded in favor of Martinez. The trust deed bore her signature. At trial, Ms. Michiel did not deny signing the trust deed, but she denied doing so knowingly.

Among other things, Mr. Martinez was found guilty of forgery. The decision was appealed. His defense against the forgery charge was that “there was no evidence that her signature was not genuine and no evidence that he used any affirmative misrepresentations … to procure her genuine signature.” The court disagreed with his claim regarding misrepresentation. Testimony had showed that he provided her “with a number of documents to sign to try and help [her] with [her] financial problems.” But, more importantly, the court held “he could be convicted of for gery even in the absence of any such affirmative representations.” [my emphasis]

The court referred to an earlier (1967) case, People v. Parker, where defendents had been found guilty of forgery even without any misrepresentation. The defendents in that case had been sellers of aluminum siding. The documents that they gave buyers to sign included a trust deed on the property. The defendents had not misrepresented the trust deeds; they simply included them, without disclosure, in the documents to be signed. That court said, “The crime of forgery is committed when a defendant, by fraud or trickery, causes another to execute a deed of trust or other document where the signer is unaware, be reason of such trickery, that he is executing a document of that nature.”

In fact, there are a number of other California decisions that would tend to support the ruling in People v. Martinez.

We haven’t heard anything about similar forgery claims in sub-prime mortgage situations. But, in light of the ruling in People v. Martinez, it would be no surprise to learn that such charges are being filed against some lenders.

by Bob Hunt

Some of the country’s biggest commercial real estate players are asking the government for help, as their $6 trillion industry of hotels, office buildings and shopping malls faces a record amount of debt coming due in the next few years.

Trade association executives said that in the past few weeks they have met with members of President-elect Barack Obama’s transition team, congressional leaders, and officials at the Treasury Department and Federal Reserve to make their case for assistance.

In the next three years, they pointed out, an estimated $530 billion of commercial mortgages will come due for refinancing — with about $160 billion due next year, according to Foresight Analytics, based in Oakland, Calif. But with the credit markets virtually collapsed, thousands of those properties could go into foreclosure or bankruptcy if owners are unable to get new loans.

“If you can’t get a loan and you owe the bank the money, you have to find the cash to pay the loan back or you default on the property,” said Steven A. Wechsler, who has been lobbying as president and chief executive of the National Association of Real Estate Investment Trusts, a D.C. association with 3,000 members. “Banks’ jobs are to make loans, not own real estate. That’s something we’d like to avoid. It could be a downward spiral that’s driven by a compromised system of credit delivery. Some constructive step by federal policymakers would be wise and appropriate to be able to free up the market.” The Wall Street Journal reported on the lobbying efforts this week.
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The real estate industry is going to the government for help because “they can,” said Jim Sullivan, a managing director at Green Street, a real estate research firm in Newport Beach, Calif.

“They see what everybody else has gotten,” he said. “Real estate is a capital-intensive business and there is no capital. They’ll take cheap money from whoever is giving it out, and now there’s only one source — the government.”

The trade associations are asking that their members be included in a $200 billion lending facility that was created by the government to support the market for consumer debt such as car loans, student loans and credit cards. In a recent letter to Treasury Secretary Henry M. Paulson Jr., industry leaders from a dozen groups described the troubled situation. “The paralysis of credit, which began in the short-term market, has coursed through the system and it now severely affects longer-term credit, especially secured and unsecured commercial real estate loans,” they wrote.

When Paulson announced the $200 billion initiative, he noted that it could possibly be expanded to aid the commercial real estate market.

The real estate groups say they aren’t asking for direct bailouts for their members, but rather for credit market support. “This is the same thing they’re doing for car loans and student loans. We’re asking them to help restart the credit markets for commercial real estate mortgages,” said Jeffrey D. DeBoer, president and chief executive of the Real Estate Roundtable, a major industry trade group.

“Banks can’t possibly absorb, manage and turn around properties at this scale if they come back to the lenders,” he said.

The commercial real estate market boomed in the last few years, fed by easy credit. But starting in mid-2007, the credit crisis essentially froze the securities market.

The amount of new commercial mortgage-backed securities — loans that are sliced, packaged and sold as bonds — fell from $200 billion in 2007 to only $12 billion in the first six months of the year, Wechsler said. “We’ve gone from 55 miles per hour to zero,” he said.

When money was flowing, investors drove up the prices of real estate, betting that rents and occupancy rates would keep going up. But cash from properties is falling as more space becomes available and rents drop, making it harder for owners to repay their debts.

While delinquency rates are low, they increased by one-third in November to 0.96 percent and could rise to more than 3 percent by the end of next year, according to figures from Deutsche Bank. Atlanta, Detroit, New York and Tampa are among the markets showing signs of rising defaults. In the Washington region, defaults are below the national average.

“It won’t help the economy if commercial real estate continues to fall like residential,” said Lisa Pendergast, managing director of commercial real estate finance at RBS Greenwich Capital Markets. “Then ultimately it will cause the recession to lengthen and deepen.”

Donald Trump is trying to unload the lower floors of the 92-story Trump International Hotel & Tower.

The New York developer has hired a broker to market the building’s four-level retail space overlooking the Chicago River, set to open next summer with room for 20 shops and restaurants.

Mr. Trump won’t disclose an asking price, but an offering memorandum obtained by Crain’s suggests the space could fetch $115 million to $130 million.

The move is a long shot given the condition of the real estate and financing markets, especially since Mr. Trump has no retail leases signed yet. And it’s the latest signal of strain at the city’s most high-profile new development, which will be the nation’s tallest residential building.

Typically, a developer leases retail space before selling it to increase the property’s value and appeal to more buyers. But Mr. Trump may be willing to forgo future profits for cash now — particularly with condo sales stalled at his project and citywide.

“In this kind of slow residential market, he’s got to be looking to get revenue to pay down his construction loan,” says Daniel McLean, chief executive of Chicago-based MCL Cos., who has built condos, retail space and a hotel at nearby River East. “I’m sure he’s under pressure to pay down his loan.”

Mr. Trump, whose funding for the massive project at 401 N. Wabash Ave. comes primarily from a $640-million loan from Deutsche Bank A.G., says he’s not strapped for cash. He insists that condo sales are steady and that the project is on track, saying he’s merely exploring a sale of the retail space in response to interest from potential buyers.

“We’re just looking to see whether or not there’s value there,” Mr. Trump says. “I think it’s unlikely I’ll do it. . . . If the right price came along, it’s something we’d consider.”

Meanwhile, Mr. Trump says talks are under way with seven potential tenants for some of the roughly 83,000-square-foot retail space, including a few “very fine” restaurants. He declines to name them.

Local real estate experts agree the site is prime for restaurants but question whether the project would garner rents as high as the $75 to $225 a foot suggested in the offering memo, which would be in line with some rents along tony Oak Street but less than the $300-to-$450 range on Michigan Avenue.

“Traditional retail is going to be tough there,” given Trump’s distance from the Mag Mile and the unusual layout of the retail space, says Larry Freed, president of Chicago-based Joseph Freed & Associates LLC, which is developing the new mall at Block 37. “From a restaurant standpoint, it’s good, dramatic space.”

Executives with the firm marketing the property, CB Richard Ellis Inc., decline to comment. Local brokers for the Los Angeles-based company also were hired by Trump in May 2007 to lease the retail space.

According to the sales memorandum, a buyer would be able to build out and reconfigure the space. That would allow a new developer to scrap plans for small spaces that seek to lure upscale apparel stores and jewelers and instead replace them with bigger spaces that would accommodate more restaurants or a grocery store.

While Mr. Trump says he has sold off undeveloped retail space before, such a move on this project would seem out of character for the image-obsessed developer.

“Retail can dictate the image of a building,” says David Stone, president of Chicago-based retail brokerage Stone Real Estate Corp. “When you sell retail like this, you can lose control of the image of your building.”

©2008 by Crain Communications Inc.