Enforcement is the last resort in a troubled loan, and the reason a senior secured position exists. A lender with a first lien on collateral it understands has a clear legal path to recovery, but that path is shaped by state law, by the type of collateral and by whether the borrower files for bankruptcy. This entry explains the main remedies at a general level. It is not legal advice; rules differ significantly from state to state.
Before enforcement: acceleration and demand
Most remedies begin with the lender declaring an event of default, accelerating the loan (making the entire balance immediately due) and sending a formal demand. The loan documents and state law may require specific notices. Lenders usually also send a reservation of rights letter earlier, so that any forbearance is not later argued to be a waiver. See defaults, waivers, forbearance and restructuring.
Real estate: foreclosure
Judicial foreclosure
In a judicial foreclosure, the lender files a lawsuit, the court confirms the debt and the default and orders a sale. It is required or customary in a number of states, including New York, Florida and Illinois, and often takes considerably longer than a nonjudicial process, sometimes a year or more where courts are busy or the borrower contests.
Nonjudicial foreclosure
In states that permit a power of sale, often where a deed of trust is used, such as Texas, Georgia, Arizona and California, a trustee sells the property after the required notices without a court action. It is usually faster and less expensive, though notice periods and procedural requirements must be followed precisely.
Common features
- Deficiency. If the sale does not cover the debt, the lender may be able to seek a deficiency against the borrower or guarantors, subject to state anti-deficiency rules and to whether the loan is recourse.
- Redemption. Some states give the borrower a right to redeem the property for a period, before or after the sale.
- Credit bid. The secured lender can usually bid its debt at the sale rather than cash.
| Feature | Judicial | Nonjudicial |
|---|---|---|
| Who runs it | Court | Trustee under a power of sale |
| Typical speed | Slower | Faster |
| Cost | Higher | Lower |
| Borrower defenses | Raised in the lawsuit | Borrower must sue to stop the sale |
| Deficiency | Often sought in the same action | Subject to state rules; sometimes restricted |
Personal property: UCC Article 9
Receivables, inventory, equipment, deposit accounts and investment property are generally governed by Article 9 of the Uniform Commercial Code. After default, a secured party may typically:
- Collect directly from account debtors, by notifying customers to pay the lender
- Take control of deposit accounts subject to a deposit account control agreement
- Repossess tangible collateral, without a court order if it can do so without a breach of the peace, or through a court otherwise
- Sell collateral in a public or private disposition, provided every aspect of the sale is commercially reasonable and required notices are given
- Accept the collateral in full or partial satisfaction of the debt (strict foreclosure), if the debtor does not object
Commercial reasonableness is the key test. A sloppy sale can reduce or eliminate a deficiency claim. This is one reason why we lend only against collateral we can value and, if necessary, take control of and realize. See the borrowing base explained and cash flow versus asset-based underwriting.
Pledged equity and UCC foreclosure
Mezzanine lenders typically hold a pledge of the equity in the entity that owns the property rather than a mortgage. Their remedy is a UCC foreclosure on that equity, often much faster than a mortgage foreclosure, which is why the intercreditor agreement between the mortgage lender and the mezzanine lender carefully defines who may take control, and on what terms.
Receivership
A receiver is a neutral party appointed by a court to take possession of and manage collateral while a dispute or foreclosure proceeds. Loan documents frequently include the borrower’s consent to a receiver after default. A receiver can collect rents, pay operating costs, complete leasing and preserve the asset. For operating real estate and some businesses, receivership protects value that could otherwise erode during a long foreclosure. Availability and powers depend on state law and the court.
Consensual alternatives
Deed in lieu of foreclosure
The borrower voluntarily transfers the property to the lender or its designee in exchange for a release or a limited release. It is faster and cheaper than foreclosure. Lenders usually confirm title first, since a deed in lieu generally takes the property subject to junior liens that a foreclosure would extinguish.
Consensual sale or friendly foreclosure
The borrower cooperates with a marketed sale, or with an uncontested foreclosure, in exchange for agreed treatment of guarantees or a share of proceeds above the debt.
Guarantees
Guarantees can be the deciding factor in a workout. A carve-out (or “bad boy”) guarantee typically makes the guarantor liable for losses, or the full loan, if specified acts occur, such as a voluntary bankruptcy filing, fraud, misapplication of rents or unpermitted transfers. Completion and carry guarantees cover finishing the project and paying interest and operating costs. A payment guarantee covers the debt itself. See collateral, security and guarantees.
Bankruptcy basics
The automatic stay
A bankruptcy filing under the US Bankruptcy Code triggers an automatic stay: almost all collection and enforcement actions against the debtor and its property must stop. A lender can ask the court to lift the stay, for example if it is not adequately protected or the debtor has no equity in the property and it is not needed for a reorganization.
Chapter 11
In Chapter 11, the debtor usually stays in control of its business and proposes a plan of reorganization. Secured creditors are entitled to adequate protection of their interest during the case, and a plan must generally give them at least the value of their collateral. Debtors may seek to use cash collateral (rents or collections) only with lender consent or court approval. Special rules for single asset real estate cases require the debtor to file a feasible plan or begin paying interest within a set period, or face relief from the stay.
Chapter 7
In Chapter 7, a trustee liquidates the debtor’s assets. Secured creditors are paid from their collateral to the extent of its value.
Why structure matters
Lenders often require special-purpose entity borrowers with separateness covenants and an independent director, and back them with carve-out guarantees that trigger on a voluntary filing. These features do not prevent bankruptcy, but they reduce the chance of an opportunistic filing and the risk of the borrower being consolidated with an affiliate’s case.
Our approach
Enforcement is costly for everyone. We pursue it only when other paths fail, and we underwrite every loan so that, if we must enforce, the collateral covers the debt with a margin. Our leverage limits, up to 75% loan-to-cost and up to 65% loan-to-value, exist for this moment. See leverage: loan-to-value, loan-to-cost and debt multiples, the chapter overview, workouts and enforcement, and our thesis, Senior, secured and patient.
This entry is general information as of November 2026, not investment, legal or tax advice, and not an offer of securities.