Commercial Loan Review

By Doherty • February 25th, 2011
A strip mall in Wynantskill, New York, United ...

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The owner of a commercial property, such as a shopping center, strip mall, apartment complex, office building and multi-tenant building, can collaborate with the bank or lender for a possible commercial loan modification.  The changes to the commercial loan may cause a reduction in the interest rates, the lengthening of the loan term,  interest-only payments for a certain period of time, or a discount in the outstanding amount.  However, before the negotiations can start for possible changes to the terms of the mortgage, a commercial loan review is performed by the lender.  This review will entail the examination of the various documents of the borrower and  various information.

Both the lender and the borrower will be involved in the commercial loan review and is required before a commercial loan modification could be forged by both parties.  It should be pointed out that the bank regulators are encouraging the restructuring of the loans because they know that a large number of the borrowers do not desire to default on their payments but the economic situation has only made them temporarily incapable of coming up with the payments.  A number of the commercial property owners only need a breather to recover from their present financial conditions while others may need a permanent change to the terms of the loan.  The commercial loan workout will be advantageous to the borrower because it will forestall the repossession or foreclosure of the property.  It will benefit the lender because the expenses required a foreclosure are avoided and the payments will still be made by the borrower albeit at lesser amounts.  During the crisis in the commercial real estate market, the lender also avoids being stuck with assets that are very difficult to sell if a commercial loan modification is allowed.

The commercial loan review process is used to determine if the business has the capability to continue with the mortgage if some changes to the terms are made.  Some of the factors that the bank or lender will look into during the procedure to determine the creditworthiness of the commercial property owner include the trend in the cash flow of the business, the payment history, market conditions, and the presence of guarantors.

From the point of view of the borrower, the commercial loan review process is quite different.  This process is often facilitated for the property owner by loss mitigation experts and lawyers who will carefully examine the text found in the initial loan contract.  The reason for this is that many agreements that were made during the times when commercial real estate was booming contained flaws or violations of laws and regulations that were created to protect the rights of the borrowers.  If violations are found in the documents, this would mean that the provisions in the contract, such as foreclosure, cannot be enforced.  The lender may even have to refund payments made for interests since the start of the loan.  This means that the commercial loan review can unearth potential negotiation tools for the borrower that can speed up the approval of the application for loan restructuring. Check out www.commercial-modification.com to get more details

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