A commercial loan audit is used to check whether the lender failed to follow certain laws or regulations that would prevent the lender from enforcing the terms of the original agreement. The findings of the audit could be useful when the owner of a commercial real estate wants to get a commercial loan modification. The audit is performed by scrutinizing every word in the loan documents to determine if there are indications of possible violations of the borrower’s rights.
With the unemployment rate still going up despite claims by many economists that the recession is over, the rate of residential foreclosure filings is still going up and it is expected that a new wave of defaults will come from the commercial sector. Commercial establishments are experiencing lower sales because of the financial crisis. Landlords are unable to collect rents, commercial centers have decreased sales, hotels have record high vacancy rates, and warehouses are experiencing a drop in customers.
Unfortunately, the predicted crisis in commercial loans is expected to be worse than the residential housing situation. Analysts estimate that 67 percent of all commercial real estate loans will be delayed in their payments that may ultimately lead to foreclosures. A commercial loan modification may help in reducing the impact of this impending crisis because it will be beneficial to both borrower and lender.
Owners of the commercial properties experiencing negative cash flow are expected to default on the mortgage payments. However, the lower monthly payments that result from a loan modification are designed to help the property owner get back on track. On the other hand, commercial lenders may avoid the costly foreclosure process by agreeing to a loan modification. Lenders are usually reluctant to agree to this kind of transaction but a commercial loan audit may unearth rule violations that may convince the lender to change his stance.
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