If you’re using what should be your operating capital to pay down a commercial real estate loan, you may be concerned that you are facing foreclosure or even bankruptcy. But there are ways to resolve a commercial property loan outside of foreclosure or bankruptcy.
Whether you are in monetary default or technical default, you and your attorney can seek a loan workout agreement with your lender. This might include a forbearance agreement, which would give you time to pay off what you owe. It could result in a loan modification, where the terms of your loan are changed. There are a variety of possibilities.
If you have borrowed from a private equity lender, there are many options for loan workouts. These lenders aren’t restricted to loan workout options allowed by regulators. Basically, you can seek changes to your loan that:
- Reduce the principal
- Reduce the interest rate
- Extend the term
- Allow a period of interest-only payments
- End the loan outside of its terms, such as a deed in lieu of foreclosure or short sale
There are fewer options for loan workouts with traditional banks and credit unions due to regulation, but there are still many available. Do you have the ability to repay your loan under reasonably modified terms?
Banks will analyze your loan, your collateral and your repayment capacity, along with that of any guarantors. Then, they will consider whether it is realistic for you to continue making the payments. If it is, they can offer several options.
Why would your lender undertake a loan workout agreement with you?
You may wonder why lenders would be willing to be flexible at all. In some cases, their alternatives may be worse. If your loan goes into foreclosure, the lender may lose money on the process. If it is possible to make your loan profitable again, it can be worth the trouble to negotiate with you.
It may be possible to halt the foreclosure process, even if it has already begun. In other cases, it may be possible to defend against the foreclosure action. There may be a real possibility that your loan could be modified so that it is more affordable. Talk to an experienced real estate attorney to get started.