How to Choose a Commercial Loan Modification Company
The vast majority of companies that facilitate loan modifications in the United States are solely dedicated to helping residential homeowners. It can be difficult for the commercial property owner who needs a commercial loan modification to actually find a company that has experience and knowledge in processing successful commercial loan workouts.
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The commercial property owner who is facing the prospect of foreclosure has a few different options when he or she is attempting to modify their loan. For an illustrative example I will use a real life situation of a client of mine in Tampa, Florida. We won't use their real names for privacy purposes and we will use the fictional name of Blue Harbor Apartments for their property.
Commercial Loan Modification: a Hypothetical
They own a 250 unit apartment building that they purchased for 8.3 million dollars in 2006. In the last year they have seen occupancy drop to 65%. This increase in vacancies has severely hurt their net monthly income. Their monthly rental income is now $92,000.00. Their expenses, including the mortgage payments are $118,000.00 a month. They are currently coming out of pocket over $20,000.00 a month just to hold on to the property. The loan they have is held by a major international bank and is amortized over 25 years at an interest rate of 7.5%. They are in a tough situation because the value of their property on today's market is approximately 6 million dollars. They are unable to refinance with another lender because they don't have any equity in the property. The only choice they have is to try to modify the commercial loan.
Before contacting me, the owners of Blue Harbor Apartments tried to contact the bank directly. The owner spoke directly to a bank vice president who told him that they were unwilling to negotiate. Many people might wonder why a bank wouldn’t negotiate with an apartment building owner who is in this type of situation. There are actually a few reasons.
The first reason is that the owners of Blue Harbor Apartments haven't missed or been late on any mortgage payments. Banks sometimes are reluctant to modify a loan that is performing well. The other reason is that banks are now being approached daily from owners who are trying to modify their own loans. Banks are not usually willing to negotiate the terms of an existing commercial mortgage unless there is a verifiable hardship. Many property owners are hoping to modify their loans simply to save money and make their properties more profitable when there is no real hardship. In the case of Blue Harbor Apartments the hardship is the fact that vacancies have climbed so high and the income has dropped so precipitously.
After an unsuccessful attempt to modify their own commercial loan modification with the bank, the owners of Blue Harbor Apartments began to look for a law firm to handle the situation for them. There are many law firms that have jumped on the loan modification bandwagon by offering loan workouts while charging a monthly fee for their services. While there are surely many competent and knowledgeable attorneys who are facilitating commercial loan modifications, the vast majority of them have a lot more experience in the residential market. Unfortunately, the experience in residential loan modifications doesn't translate well to the complexities of the commercial real estate market.
Finally, the owners of Blue Harbor Apartments decided to contact a company that specializes only in commercial loan modifications. The owners of Blue Harbor Apartments made a good decision to research the marketplace thoroughly and find a company that has real experience negotiating with banks on behalf of commercial real estate owners.
Tips for choosing a commercial load modification company:
- When you are investigating different companies to help you modify your commercial loan look for a company that specializes only in commercial property.
- The company should also offer a money back guarantee if they are unable to facilitate a successful commercial loan modification.
- You should read over any contract that you sign and also have your real estate attorney read over the contract.
- Ask the company you are investigating what their success rate has been and also find out if they have had experience negotiating with the bank who holds your mortgage.
- Ask as many questions as possible and do your best to educate yourself about the process as much as possible.
This will ensure that you will have the greatest chance for success.