WHAT IS A COMMERCIAL LOAN MODIFICATION?
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The recent economic downturn has left commercial lenders with an onslaught of loans in default or on the verge of default. This has created opportunity for borrowers facing financial hardships. Lenders have over leveraged themselves and now find it in their best interest to work with borrowers rather than foreclose. With the risk of these defaulting and distressed loans turning into a second wave of foreclosures following the recent residential real estate meltdown, banks are now more open and willing to work with commercial borrowers to avoid bankruptcy and save the bank the expense of going through the foreclosure process.
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A commercial loan modification may lower a borrower’s monthly payments so they can continue effectively owning and operating their properties. A loan modification will allow borrowers to avoid losing their assets and destroying their credit with a bankruptcy or foreclosure. Additionally, the commercial modification will allow banks to stay in the business of lending and not property management and brokerage. |
Often a commercial loan modification can reduce the amount of interest paid by the borrower or even lower the principal amount still owed on the loan. A loan modification is available to both businesses and individuals that own commercial properties such as strip-malls, shopping centers, apartment buildings, office buildings, industrial complexes, gas stations, entitled land, raw land or properties under construction. In a successfully negotiated commercial loan modification, the bank agrees with the borrower to permanently change the terms of the original note thus lowering the monthly payment. This can be accomplished with many strategies including but not limited to an interest rate reduction, changing the loan from principle and interest to interest only, a principle reduction, longer amortization schedule or a combination of these strategies.
Commercial loans are oftentimes structured as portfolio loans since they are generally not securitized like single family residential loans. This structure makes the actual note holder more readily identifiable and approachable permitting an experienced real estate attorney at Hanasab & Zolekhian, LLP to be much more effective in negotiating a solution that is beneficial to both parties.
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