The idea of foreclosure is something that no loan borrower ever wants to face. When a loan is foreclosed on, the property that was purchased with the loan is surrendered back to the lender, with which they can sell to attempt to make up part, if not all, of their losses. Real estate loans are issued for one of two purposes, residential or commercial. This means that the owner of the property will use the property as a home or as a business. When the housing market fell in 2007, the federal government created various programs for homeowners struggling to make their monthly payments on time, one of which was referred to as the Home Affordable Modification Program, or HAMP. Even though multiple government programs sprang up in the midst of the housing crisis to assist residential property owners, little to no help for commercial property facing foreclosure was offered.
To this day, there is no equivalent to the government’s HAMP to assist struggling business property owners. Since there is no option for government loan modification for private business, the assistance that the struggling business owner receives will have to come from private sources. Lenders offer their borrowers a few options when foreclosure begins to become a fear for the borrower.
Borrowers may apply for a loan modification from their lender, which will lower the borrower’s monthly payments to the lender by modifying one or more of the original terms of the borrower’s mortgage contract. This option tends to be the most popular option for commercial property owners because it allows them to maintain ownership of the property, lower their monthly payments, and doesn’t damage the their credit score.
Another alternative to government loan modification for private business is a short sale, which allows the property owner to sell their property for less than they owe on it. In most cases, the remaining difference will be forgiven by the lender, but the borrower should determine whether or not this is the case before they agree to the short sale. This option is popular because it allows the business owner to avoid the mark of foreclosure on their credit score, but it will still require the business owner to forfeit the property to a new owner.
A deed in lieu of foreclosure agreement is another option that is not as popular as a loan modification but still helpful. A deed in lieu of foreclosure allows the business owner to surrender the deed to the property to a third party investor or to the lender, making the business owner a tenant of the deed holder. This option is good because it usually lowers the borrower’s monthly payments, but it is not without its downfalls. For example, even though the business owner gets to stay in the property as long as they pay their rent to the deed holder, the business owner can be evicted at any time should the deed holder refuse to extend their lease.
Even though the federal government offers no assistance to struggling commercial property owners the way that they do to struggling residential property owners, commercial property owners need to understand that options still exist to avoid foreclosure. Even though the assistance won’t come from the federal government, the assistance offered by private lenders is often on par with that offered by the government.