The past 16 months have been extremely hard on the restaurant industry. With the COVID-19 Delta variant causing an upswing in cases across the country, it seems likely that more restaurants will be forced to close their doors - and unfortunately, we’re likely to see an increase in restaurant owners defaulting on their loans. Restaurants present unique challenges when it comes to the foreclosure process. Here are three steps lenders need to take when considering foreclosing on a restaurant.
Conduct an Initial Assessment
Before beginning a restaurant foreclosure, it’s important to assess the restaurant’s business structure. Much of this information can be gathered from the analysis that was performed prior to the loan being given. Because financial conditions are constantly changing, and certainly have been since the spring of 2020, it’s important to be sure that the loan documents and files are complete, and that the borrower’s current financial information is on file. In addition, restaurant ownership can be subject to complex management structures that need to be considered before actions are taken.
Understand the Ownership Structure
When considering a foreclosure as well as alternatives to foreclosing, lenders need to understand the restaurant’s ownership structure to see if the borrower might be a good candidate for a loan modification or other alternative solutions. As with hotel foreclosures, foreclosing on restaurants can be complicated if the restaurant isn’t owned by an individual. If the restaurant is part of a franchise, there will be franchise obligations that need to be understood and sorted out. Independently owned restaurants also bring their own complications - outside investors may have a stake in ownership, or the restaurant owner may own more than one location. In all instances, the nature of the restaurant’s ownership can affect the value of the underlying collateral and help determine the lender’s best course of action.
Consider The Options Before Foreclosing on A Restaurant
There will be times when a foreclosure is the only way to recover a defaulted loan. But before that step is taken, consider the possible alternatives. These could include:
- Restructuring the loan to lower or defer the payments
- Requesting a deed-in-lieu of foreclosure
- Selling the loan
Foreclosure can be a lengthy and costly process, and lenders should work with the borrower to exhaust all possible solutions before proceeding to that step.
There will, of course, be times when the borrower is simply unable to make the loan payments, and foreclosure will be unavoidable. At Total Lender Solutions, we advocate for lenders looking to maximize recoveries on defaulted loans. For over 15 years, our team of highly experienced real estate professionals and legal experts has transformed complicated processes into clear resolutions for institutional and private lenders. We work as a vigorous extension of your team to provide comprehensive solutions and seamless communication, from pre-foreclosure and notice of default to the final sale phase. Our dedication and persistence when it comes to the foreclosure process ensures that our clients feel confident in reaching a successful outcome. Contact us today.
