EDUCATIONAL

FREQUENTLY ASKED QUESTIONS

Commercial Workouts FAQ

 

WHAT IS A CRE LOAN MODIFICATION?

A commercial real estate loan modification is a modification of your existing debt, which is usually required when the property or borrower is in distress. A modification is different from a refinance, which requires the borrower to have sufficient equity in the property.  Loan modifications can change the principal, rate, terms, and/or amortization period of a loan.

 

WHAT IS A CRE SHORT SALE?

A Commercial Real Estate (CRE) Short Sale occurs when a lender allows a property owner to sell their property and payoff the existing mortgage for less than what is owed.  Unlike residential short sales, many commercial lenders will allow a borrower to buy their own property using a short sale.

 

HOW DO I QUALIFY FOR A CRE LOAN MODIFICATION OR SHORT SALE?

Unlike residential loan modifications and short sales, there are no standard requirements for a borrower to qualify for a commercial real estate loan modification or short sale.  Most lenders will require some sort of hardship – on the part of either the property or borrower – in order to accept a short sale or loan modification for a commercial property.  We work with a borrower to determine the best course of action, and then develop a proposal that makes sense to the lender based upon current market conditions.

 

WHO SHOULD GET A CRE LOAN MODIFICATION OR SHORT SALE?

If you or your property is in distress, you might wish to consider a loan modification or short sale.  If you want to keep the property but can’t afford current loan payments, a loan modification is a good option.  If you want to sell the property but the value has dropped to below the outstanding debt, a short sale is the correct option.  Additional funds may be needed to recapitalize the property.

 

DO I NEED TO BE LATE ON MY PAYMENTS TO THE LENDER?

Not necessarily. It depends upon the lender. Some lenders will only entertain modification or short sale of loans that have late payments.

 

HOW ARE COMMERCIAL LOAN MODIFICATIONS DIFFERENT THAN RESIDENTIAL LOAN MODIFICATIONS?

To protect consumers, the US government has implemented certain protections and programs which mandate residential loan modifications.  Commercial lenders are not obligated, at present, to make any efforts to assist commercial borrowers with loan modifications. It is therefore critical to have a strong and qualified advocacy team to work with the lenders to submit modification requests.

 

HOW ARE COMMERCIAL SHORT SALES DIFFERENT FROM RESIDENTIAL SHORT SALES?

Residential short sales cannot be purchased by their existing owners. There are no restrictions upon the purchase of a commercial property by its existing owner with a short sale.  Residential properties more often than not have multiple liens. Most commercial properties have only one lien, and therefore one lender to approve a lower pay-off.

 

WHAT IF I HAVE A CONDUIT LOAN ON MY PROPERTY, WILL IT BE HARDER TO MODIFY OR SHORT SALE MY PROPERTY?

Conduit loans are securitized debt. There are multiple investors on every loan, this makes approval of a modification or short sale by a conduit servicer quite difficult at present.  Due to the large amount of conduit debt that is coming due in the next few years, it is believed by many that the servicers will become easier to negotiate with.

 

WHY WILL THE LENDER ACCEPT A LOWER PAY-OFF AMOUNT ON MY COMMERCIAL PROPERTY?

Many banks are receiving pressure to increase their capital reserves. This means they are more likely to accept an early reduced pay-off now instead of waiting for the possibility of more money later. If the lender believes there is the potential for the property will go into foreclosure and the property has dropped significantly in value, they may be willing to consider a reduced pay-off now.




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