Mezz foreclosure runs under UCC Article 9 and targets the pledged equity interests, not the property. After notice, the mezz lender holds a public sale of the SPE membership interests; the buyer steps into ownership. The senior mortgage continues unaffected, subject to the intercreditor's replacement-guarantor and consent requirements.
What does the process look like?
Notice of default and acceleration. Coordination with the senior under the intercreditor (notice, opportunity for senior to consent to the buyer). Notice of public sale (commercially reasonable terms). Public auction of the equity interests. Closing into the buyer with replacement guarantor in place if required.
What can derail it?
Borrower bankruptcy can stay the foreclosure. Senior may withhold consent to a buyer that does not meet replacement-guarantor net-worth and liquidity tests. Operating contracts (franchise agreements on hotels, ground leases) may have change-of-control provisions that require additional consents.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Financial Stability Report · Board of Governors of the Federal Reserve System · 2025-11