This commercial loan modification guide is only meant to serve as a general overview of the commercial loan modification process. The interested borrower should consult an experienced foreclosure attorney for more information specific to their circumstances.
The commercial loan modification is one of the few options that borrowers have to avoid foreclosure on their commercial loans. Other options include a short sale or deed in lieu, but these options require the owner to give up ownership of their property, which causes many people to avoid this option.
A loan modification is an agreement between borrower and lender to modify the terms of an original loan contract in an effort to make payments more affordable for the borrower. The process can be lengthy because of the red tape imposed on the process by the lending industry. Applying for the modification is fairly simple and straight forward, but having to wait up to a year for a decision from the lender makes the process all the more stressful.
For the borrower who wants to apply for a modification, an application for loan modification will have to be filled out. Commercial loan modifications are currently not included in government efforts to help borrowers modify their loans, so the borrowers of commercial loans will have to apply for an in house modification plan offered directly through their lender.
When applying, the borrower will have to submit their application form, income/loss statements for their business, and a hardship letter. Some lenders will require more documents, but most will require these basic three. The income and loss statements will be compiled from bank statements, pay stubs, etc. The hardship letter will be nothing more than a letter written by the borrower explaining the reason for the hardship and how the borrower intends to pay off their debts should the modification be approved. The hardship letter does not need to be more than a few paragraphs on a couple of sheets of paper. It should contain only facts and should be double spaced to facilitate ease of reading.
Assuming the lender does not lose any of the documents that they request (which happens on a fairly regular basis), and assuming that the lender doesn’t drag their feet longer than they have to (which happens pretty constantly), the borrower will be sent a letter in the mail describing what modification terms the lender has agreed to. The borrower may accept or reject these terms. Before deciding to accept or reject the terms, the borrower should have the offer reviewed by their local foreclosure attorney to make sure it is in the best interest possible for the borrower.
The modification will not become effective until both parties agree to new loan terms. If both parties fail to reach an agreement, the old lending contract will remain in effect and the borrower may elect to take their lender to court to force them to accept better modification terms. Again, before taking a lender to court, the borrower should have the facts of their case reviewed by a foreclosure attorney, just to make sure the borrower has as strong as a case as they think that they do.