A commercial building loan is to a business owner as a mortgage loan is to a homeowner. A foreclosure, on the other hand, is exactly the same no matter which way you slice it. A foreclosure, in laymen’s terms, is simply the repossession of collateral in the event that a loan falls into default. Homeowners that fall into default face the repossession of their home, while business owners that fall into default on commercial property loans face the repossession of their commercial property.
There are several options available to the business owner to avoid foreclosure should they ever have trouble making their minimum monthly payments, but only one option is the least costly. A short sale will help a business owner avoid a mark of foreclosure on their credit score, but will require the business owner to give up their property. A deed in lieu of foreclosure will also avoid the mark of foreclosure on the owner’s credit score, but there is no telling what an outside investor will do with the property. Bankruptcy also has the potential to avoid a foreclosure, but at the expense of the credit score, which can prove costly in the long run, especially if the business owner wants to purchase more business property in the future.
While all of these options are very viable and offer improved odds of saving a business, they are not usually the first option that should be explored by the worried business owner.
A commercial building loan modification should always be explored as the first option against foreclosure because it offers the most benefits in comparison to other options. Under a commercial building loan modification, the business owner would be able to retain ownership of the property, lower their monthly payments, and leave their credit score untouched by bad marks.
The act of having a loan modified does not affect a credit score in any way, but the score will be affected if the business owner allowed the loan to fall into default (which is usually the case). The impact that the default will have on the credit score will vary depending on the amount in default and the amount of time that the loan was allowed to remain in default. The good news is that as soon as the modification is approved, the business owner can begin repairing their credit by making all of their modified payments in full and on time. It is often much easier to recover a credit score after a successful commercial building loan modification because the lower monthly payments are much easier for the business owner to keep up with. Additionally, if the monthly payments are lowered enough, any left over money can be applied toward other debts. If money is left over, the business owner is urged to place as much as they can toward the debts with the highest interest rates, as this tactic will save the business owner much more money over time.
In the event that a loan modification is either out of the question or the request has been denied, and an attorney can offer no further assistance in pursuing a modification, then the other options outlined above should be explored. An attorney should be consulted to determine which option would be most appropriate to pursue.