Tips for Conducting a Commercial Loan Modification Workout

By: Timothy McFarlin | Published: June 16th, 2010 | Category: Loan Modification

A large portion of commercial properties are not actually owned by the businesses that occupy them.  Most commercial properties are owned by investors who lease out space within their building to local businesses.  Some buildings are leased to a single business, while others are divided into sections and floors that house multiple businesses.  The owner of the property is able to set their own rent prices as they see fit.

When the economy took a turn for the worse, several businesses were hit hard, forcing many to close doors, cut employees, or negotiate lower lease terms.  The property owners know that it would be difficult to fill office space in a troubled economy, and rather than risk earning no monthly rental income, they agreed to lower the rates of the occupants, in essence saving two businesses at the same time.  This kind of decision was made by commercial property owners all over the U.S., some with big hearts, some with a keen sense of tactical business, and some with a combination of the two.  No matter the motivation behind the property owners accepting lower lease rates from their tenants, the loss of revenue from this factor alone has placed many owners in a tight financial spot staring down the wrong end of a foreclosure from their lender.

Property owners now facing foreclosure are beginning to explore commercial loan modification workout plans.  A commercial loan modification would allow the property owner to modify the existing terms of the original mortgage contract so that monthly payments could be lowered.  In most cases, the lower monthly payments will allow the property owner to tread the financial waters while the businesses in their buildings generate more revenue or while the owner looks for businesses that can afford to pay higher lease rates.

Much of the same problems that residential property owners face when dealing with lenders are shared by commercial property owners.  The modification of a loan is an agreement between borrower and lender that would force the lender to accept less of a profit than originally agreed.  Nobody likes to make less money than they thought they would, especially lenders, which has caused customer service and cooperation from lenders to be difficult to find.  Not all lenders will lose client paperwork, drop phone calls, refuse to return phone calls, etc., but all it takes is one of these incidents to prolong the process of getting assistance.

This advice has been given to homeowners before in the past, and it should be followed by business owners alike:  Get an attorney on the side of the business, who can look out for the best interests of the business, as soon as possible.  Not only will cooperation from lenders be far easier to come by, but a higher chance of success and a better commercial loan modification workout plan are often associated with business owners who are represented by an attorney than those who are not.

As the owner of commercial real estate and landlord to several smaller businesses, the success of a commercial loan modification workout will not only affect the property owner, but each and every employee of each and every business occupying the property.  If the property is foreclosed on, there is no guarantee that the new owner will keep any of those businesses around, forcing them to shut their doors as well.

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