Thursday, January 25, 2018
A Taxi Medallion Workout Success Story-No. 1 from Shenwick & Associates!
As many of our readers know, Shenwick & Associates has developed a specialty representing taxi medallion owners with "underwater " medallions (underwater medallions are medallions valued at less than the bank loan). We were recently retained by a client who was at her wits’ end. She co-owned a medallion; the medallion loan had matured, and her partner refused to sign a loan extension. If the medallion loan wasn’t extended, the bank indicated that they would foreclose on the medallion and sell it to repay the loan. Due to the depressed market value of medallions, now would not be the optimal time for a foreclosure sale!
The medallion owner was extremely stressed, so she went online and searched for attorneys with taxi medallion experience. She saw our blog, read a few the posts and called to set up an interview with Jim Shenwick. We asked her to bring in a list of property that she owned (assets), creditors she owed money to (liabilities), an after tax monthly budget for herself and the taxi medallion loan documents that she executed with the bank.
The client indicated that she did not want to file for bankruptcy, she wanted to keep the medallion and she wanted to extend the loan, if possible. She then retained us to handle the matter. Jim Shenwick called the attorney representing the co-owner. Fortunately, the co-owner’s attorney was reasonable and knowledgeable, agreed with our analysis of the situation, and counseled his client that a sale of the medallion or a foreclosure (which could result in relief of indebtedness income being reported to the Internal Revenue Service pursuant to § 108 of the Internal Revenue Code) was not in either party’s best interest.
We then discussed why his client did not want to extend the bank loan for the medallion, and he indicated that his client was aging and that notwithstanding the fact that his client was legally liable to repay the bank loan, the economic benefit of the prior loan accrued to our client (which we confirmed with her). He suggested that the owner’s enter into an indemnification and hold harmless agreement, which provided that the lease payments from the medallion would go to service the loan, and if there was a default on the loan, that would be the responsibility of our client and not the co-owner. Both parties agreed to these terms and the agreement was drafted and executed. The co-owner then executed the loan extension agreements with the bank and the loan was extended at a low interest rate for three years. The settlement between the two medallion owners and the medallion owners and the bank was advantageous for all parties.
Posted by James Shenwick