Commercial loan lenders are in the business to make money. Unlike residential mortgages, commercial loans do not currently qualify for any type of government assistance programs, which means that commercial loan lenders do not receive any incentives to modify commercial loans. Even though modification has historically been shown to be more profitable than foreclosure, lenders continue to choose foreclosure over modification in order to cut their losses.
When a commercial loan borrower faces foreclosure, they may find that representatives of their lender do not have as much knowledge about the modification process as they should. Whether intentional or not, the following is a list of the most common lies that borrowers will hear from their commercial loan lenders:
“Your contract is fine”: Borrowers around the country may be surprised to learn that a majority of loan contracts issued between the 1990s and around the time that the lending industry nearly collapsed in 2007 contain evidence of predatory and illegal lending practices. It was the lender that issued the contract in the first place, so taking their word that everything is on the up and up would be less than wise.
“You can only apply for a modification if you are in default”: False. A person can apply whenever they want, but they will have to show a true financial need in order to be approved. Many people who are current with their loan payments may still have a legitimate need to modify their loan. The borrower should contact an attorney if their lender is refusing to offer assistance.
“Stop making payments for now”: Borrowers usually hear this when they are told that their modification request is under review. Unfortunately, the person who delivers this message usually fails to tell the guy mailing out foreclosure notices. If a lender ever tells their borrower to stop making payments, for any reason, the borrower should always ask for written authorization to do so (unless, of course, a case is in litigation, in which case the borrower is protected by law from making payments while the court reviews the facts of the case).
“Sorry, you can only talk with this department regarding your modification request”: Unless this comment comes from the loss mitigation department (who ultimately decides whether or not to approve a modification), don’t take it for an answer. Customer service representatives and collection agents love to block access to other departments. In most cases, this will be written in to their policies. Don’t get mad, get an attorney. An attorney knows how to break through the operator blockade to talk to the people who can actually help the borrower.
“That’s the best we can do”: It’s never the best they can do, especially if it’s a first modification offer. Borrowers are under no requirement to accept the first offer made by their lenders and are well within their rights as borrowers to request better terms. Agreeing to modification terms that don’t do anything to help the borrower in the long run is a waste of time. An attorney should be hired to negotiate better modification terms with the lender before any documents are signed.
Much of the confusion from commercial loan lenders comes from their inability to coordinate the information that is handed out to borrowers. A countless number of borrowers have been told different things by different departments within their lending institutions that have had a negative impact on the borrower’s ability to secure the assistance they needed to stay out of foreclosure. It is important for borrowers to understand that the above list is not absolute and that everything their lender’s tell them is to be taken with a grain of salt. As always, it is recommended that the borrower secure the services of an experienced foreclosure attorney who can cut through t
lies in order to assist their client to the greatest degree possible.