A Flood of CRE Litigation Could Be On the Way

This is the calm before a litigation storm, according to Sean Gaffney of Crosbie Gliner Schiffman Southard & Swanson. A flood of CRE litigation could be on the way next year. Loans and leases can only be restructured for so long before they result in defaults, which will in turn trigger litigation.

“The coronavirus pandemic has had such pervasive effects on both the commercial and residential real estate markets that the vast majority of landlords, lenders, and business owners have worked in good faith to offer substantial concessions to tenants and borrowers,” Gaffney, a partner at CGS3, tells GlobeSt.com. “However, loans and leases can’t be restructured indefinitely and with the market showing unexpected strength in terms of long-term valuation, there will inevitably be a wave of defaults that will manifest in litigation.”

Eviction litigation is certainly at the top of that list. While landlords are unable to move forward with litigation in the courts, many are preparing to file eviction cases when the courts re-open. “With eviction moratoriums still in place, courts still operating under general restrictions after lengthy closures, and jury trials postponed for months to come—all due to the COVID 19 crisis—everything is in a holding pattern. But by early next year,  there could  be an onslaught of evictions and ensuing litigation, impacting the office, retail and multifamily sectors,” says Gaffney.

When landlords can move forward, there will likely be an onslaught of eviction filings, which could overwhelm the court system. “Once the current moratoriums expire and courts accept the filing of new unlawful detainer actions, I foresee a tremendous backlog of new complaints that will overwhelm judicial resources and significantly lengthen the timeline for disposition of individual cases,” adds Gaffney.

In many ways, the courts might not be ready to handle the caseload that is coming. “Many courts were already understaffed prior to the pandemic, and these new filings will likely be subject to extended processing times and also an increased risk of rejection on minor technical grounds as courts search for ways around the mandate that eviction cases receive priority for trial-setting over other types of civil lawsuits,” says Gaffney. “Tenants currently have a lot of leverage, and there is big pressure on landlords to reach deals. Everyone knows how long it will take to get your day in court right now.”