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. 

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.

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  1. Justin Bartlett on

    No offense or anything, but I think that when looking for a good commercial modification company, in addition to ensuring there is a money back guarantee, also, if you have to pay a portion of the fee up front, make sure that you are paying only half of the total amount; from a business standpoint, its difficult for companies to trust borrowers to pay them after the modification is complete, however, from the borrower stand point, its very important to create financial incentive for the company to fight tooth and nail to get the modification. (Just my humble opinion)

  2. Oliver Channing on

    As a profeesional company that has provided houndreds of forensic audits in residential as well as commercial, I would agree that one must be extremely careful in how they pay modification companies. We believe that in order for anyone to negotiate a debt-restructuring, one must create or discover sufficient leverage to accomplish such a goal. Also, once the leverage is discovered or created, one must learn how to use the leverage to achieve the ultimate goal. The forensic audit of documents and details relating to the original transaction are key to negotiating a modification of financing terms.

  3. I agree with the comment about discovery. It‘s much easier to motivate the bank to provide a work-out on your commercial property with leverage then it would be if you just went to the bank with your hands out asking for help. If your loan is performing, no matter the negative cash flow you personally paying, you’ll find it very difficult to get the bank to renegotiate your loan. There are some things you must beware of though as you move forward. A forensic audit on commercial property is completely different then residential. In residential loans you have TILA (Truth in Lending Act), RESPA (Real Estate Settlement Procedures Act) HOEPA (Home Equity Protection Act) and PREDATORY Violations. Each having its own statues of limitations and ramifications on the lender.
    In commercial audits there are no TILA, RESPA or HOEPA violations. All there is to uncover is Predatory Violations. There are several things within Predatory Violations that can help you create the discovery you’ll need to have leverage but depending on the state your property is located will determine what laws governed your lender and the documents attached to your loan.
    Something else you may want you have analyzed is what happen to your loan after it was funded? Was it a Portfolio loan or was it securitized as a CMBS (Commercial Mortgage Backed Securities)?
    This, securitization discovery can be just as detrimental to a lender and solid leverage like the Forensic analysis because we’ve all seen what’s happened with the residential loans with the Robo-Signing, Back-Dated Assignments of Mortgage or Deed of Trust and Fraudulent Declarations or Affidavits . This information in the hands of the right Attorney can prove to be the difference in reaching an offer and compromise.
    Commercial property has always been a lagging indicator in the economy and because it lags so far behind the curve we’ve only just begun to see his huge ice-berg begin to melt down. As it melts, it’s going to create a flood of issues economically and creating more policy driving the economy down the river of insolvency.
    1.4 trillion dollars of balloon payments are scheduled to become due by 2014. If these property owners cannot get there Loans Modified, and soon, it will make the residential situation look like a walk in the park and be potentially a very devastating situation on the economy dragging it down even further then we are now. If you are a commercial property owner, be it a Major Corporation, Equity Partner or even a Sole Proprietor you should first approach your bank and see what they will do for you. But, if they refuse to restructure your loan then try and get the right help so you can keep your property performing with a positive cash flow.
    Best Wishes,
    Brian Head
    Lighthouse Consulting Group
    800 529-2959

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