The Difference Between Residential and Commercial Loan Modification

By: Timothy McFarlin | Published: November 2nd, 2010 | Category: Foreclosure Issues, Loan Modification

The difference between residential and commercial loan modification can be best understood by thinking of the differences between residential and commercial loans in general. Residential loans and commercial loans are typically originated for the same purpose (to buy or refinance property). However, the similarities in loan structure do not translate into similarities with loan modification itself. The biggest difference being the favorable government directed loan modification programs do not typically apply to commercial loans.

Challenges with Commercial Loan Modification

Commercial loan modification is generally much more challenging than residential loan modifications.  As a commercial building owner, when considering a commercial loan modification, there are some significant challenges that should be addressed. Commercial loan modification companies, and even attorneys, often offer a variety alluring promises to commercial building owners.  Unfortunately, these loan modification services often fail to produce results.  In most cases, the services that commercial loan modification service companies offer are limited to document review and follow up.

HAMP and Other Government Programs Do Not Apply to Commercial Loans

The favorable programs established by the Federal government such as HAMP and MHA (Making Home Affordable), do not apply to commercial loan modifications.  Any commercial loan modification offered would be a lender’s “in house” program, which are usually less beneficial and typically take longer to qualify for. That’s not to say commercial loan modifications can not be done, they just can’t be done under HAMP (like residential loan modifications), and typically take much longer.

Commercial Loan Modification Document Requirements

Commercial loan modification typically requires the production of a number of documents residential loan modification does not require. This can include documents and information related to the income generated from the property (leases, advertising, other sources of income) as well as documents related to the expenses of operating the building (utilities, maintenance, management, etc.). The commercial loan modification decision will be made largely on cash flow and income generated from the building, so those documents are critical. The lender must be convinced there is sufficient money generated to pay the mortgage.

Favorable Aspects to Commercial Loan Modification Services

With a commercial loan modification, the potential losses are generally much higher for the lender, which can work in the borrowers favor.  Since commercial loans are, on average, much larger than residential loans, the foreclosure risk for the lender is greater. The cost of foreclosing on a commercial property is also much higher. If the property becomes an REO after foreclosure, the lender will have to have it on their books longer and also faces managing the property in the interim, pay maintenance and property taxes and become an absentee landlord.  All these factors make it more desirable for a commercial mortgage lender to continue generating income from the asset “as is,” even if it’s slightly less income, than to go through the risky foreclosure process. As you can see, there are many good reasons for a commercial lender to offer a commercial loan modification, it just takes the expertise of the right professional to make them see your way.

California Commercial Loan Modification Attorneys

McFarlin LLP attorneys handle all aspects of commercial and residential loan modification for borrowers in Los Angeles, Long Beach, Anaheim, Santa Ana, Garden Grove, Stanton, Carson, Gardena and throughout California. Our attorneys are available to provide you with honest reliable advice at our Los Angeles or Orange County offices, or over the phone. With a matter as important as commercial loan modification and foreclosure, it is a very good idea to consider hiring qualified commercial loan modification lawyers to represent you and protect your interests. Call us today at (888) 728-0044.

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