How will CMBS transactions affect professional negligence claims?

How will CMBS transactions affect professional negligence claims?

In what circumstances will an issuer have a right to bring a claim in commercial mortgage-backed securities (CMBS) transactions? James Walton, partner at Rosling King, comments on a case which he says will impact upon other professional negligence claims being brought by issuers of CMBS.

Original news

Titan Europe 2006–3 plc v Colliers International UK plc (in liquidation) [2014] EWHC 3106, [2014] All ER (D) 07 (Oct)

The defendant valued a commercial property for the claimant which was security for a loan. The tenant of the property became insolvent and the property was in the process of being sold for a price far below the valuation. The claimant brought a claim for professional negligence against the defendant company which went into liquidation in 2012. It sought judgment for €58,400,000, being the difference between the valuation of the property at €135m and what the claimant contended was the true market value at €76.6m. The Commercial Court concluded the true value of the property as at December 2005 was €103m and that the defendant hadtherefore 'negligently' overvalued the property by €32m.

In a CMBS transaction, is it usual to rely on the original valuation from when security is taken over the property rather than looking for a new valuation at the time the loans and collateral for the loans are transferred into a special purpose vehicle for the CMBS?

In a CMBS transaction, this is absolutely the usual position. A transaction like the Titan Europe 2006-3 transaction (and many others at around that time) was made up of a multitude of different loans (in some cases with a number of properties securing each loan).

It takes time to originate these loans, pool them all together and then to go out and find investors who would be prepared to invest in the notes that would subsequently be issued. It would be entirely impractical either for:

  • the investors themselves to go

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