How a Commercial Loan Workout Can Prevent Foreclosure


Billions of dollars worth of commercial mortgages are due to reset from 2009 to 2012. Many holders of these mortgages won't be able to refinance because of decreasing property values. High unemployment has also taken a toll on the real estate market. Because tenants are not able make rent payments, scores of office and apartment complexes will likely have less cash flow and go into foreclosure. How can a Commercial Loan Workout help avoid foreclosure?

A commercial loan workout can prevent a default by one or more of the following: Defer payments, reduce principal amounts, lower interest rates or extend the reset period, thereby improving cash flow. If feasible, banks are willing to restructure loans to avoid costly foreclosures.

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What types of properties can benefit from these modifications? Hotels, resorts, warehouses, industrial complexes, office buildings, apartment buildings, strip malls, restaurants, condominiums and land developments.

A successful workout is based on the property owner's ability to sustain enough cash flow to make payments on the new loan terms. Banks are looking to see if the owner can financially handle the modified loan payments or it will not fly. A good plan of action and financial documentation is needed to justify to the banks that a commercial loan workout is the right solution, as oppose to foreclosure.

Owners can go directly to their lender to apply for a commercial loan workout, but they may find it a rather daunting task. There are fee-based third-party firms that will negotiate on behalf of property owners with surprisingly successful results. The key is to find the right firm with many years of experience in performing modifications as opposed to firms with only residential loan experience that are now switching over to the commercial loan workout bandwagon.

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