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.
Jim Shenwick
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