Banks and lenders have been silent regarding the impending crisis in commercial real estate loans although analysts have been predicting that this is another bubble that is scheduled to burst in 2010. Bank regulators and financial experts are now urging both lenders and borrowers to sit down and workout a solution before these properties go into foreclosure.
The reason for the apprehension is that property owners have been hit by the ongoing financial crisis. The number of vacancies in apartment buildings, hotels, multi-tenant buildings, strip malls, business complexes, warehouses and office buildings, has been so high that tenants have even gained the power to call for reductions in their rent. This has severely affected the cash flow of the property owners that it may have come to a point that payment of the mortgage installments is impossible. Naturally, this is expected to lead to foreclosure if the situation continues.
To make matters worse, a substantial number of these loans are about to the reach the end of their terms in 2010 when the borrower has to make a balloon payment. Normally, the borrower will seek for a refinance or sell the property to come up with the amount due. However, with sources of funding very limited and the woeful state of commercial real estate, these two options may not be available. Once again, the borrower will be in danger of default and the property may go into foreclosure.
One possible way out for the borrower is a loan modification. However, lenders and banks are averse to allowing such changes in the loans because of the impact on their cash flow. The assistance of a commercial loan review is therefore required. An expert in this particular field will review the loan documents and try to find out if there are any indications that the lender had violated any laws or regulations that may make it impossible for the lender to enforce the terms of the loan agreement, such as a foreclosure.
Such a finding would make it easier for the borrower to convince the lender to agree to a loan modification. Moreover, if the foreclosure proceedings have already been started, these will come to a halt as the investigation of the possible violations is being held. The discovery of these violations may finally convince a reluctant lender to agree to the loan modification. Not that the lender will not also benefit from the procedure because in a foreclosure, the lender would just be in possession of a property that he cannot sell.
Tags: commercial loan modification, commercial loan review, commercial loan workout