If you are a lender with a borrower in default, you understand how large of an undertaking a foreclosure can feel like. It may be time consuming, costly, and complicated. Seeing a foreclosure through to its conclusion is a lengthy process, but luckily lenders have alternatives available to them, even after the commercial foreclosure process has started.
At Total Lender Solutions, we have helped lenders enact foreclosures for over fifteen years and understand the most effective way to see a foreclosure through to its conclusion. We also understand and advocate for lenders seeking alternative solutions for their unique situations. “More times than not, lenders will end up seeking alternative resolution options,” says CEO Randy Newman. “State law makes it simple to find the best solution for both lenders and borrowers.”
Below are some options to consider if you are a lender looking for alternative solutions for your defaulting borrower.
Three Options for Lenders During the Commercial Foreclosure Process
Reinstatement:
Borrowers often have the option to reinstate the loan if the foreclosure process has not been completed. In reinstatement, the borrower pays the amount currently owed as long as the loan has not matured. This includes delinquent payments, late charges, and any additional penalties, fees, or costs, including the fees of foreclosure services or attorneys. If these conditions are met, this halts the foreclosure process.
Many nonjudicial foreclosure proceedings have a deadline for when a borrower may reinstate the loan according to state law. For instance, in California, borrowers may reinstate the loan up to five days before the date of the foreclosure sale.
Redemption:
Redemption is different from reinstatement in that borrowers must pay off the entire loan amount to redeem the property. The borrower must pay off the full amount owed, including the principal, interest, late charges, and any additional costs. Redemption also differs from reinstatement in that it happens after the foreclosure sale. The redemption period varies by jurisdiction and is typically determined by state law — not every state allows for redemptions.
Deed in Lieu of Foreclosure:
In a deed in lieu of foreclosure, also known as a friendly foreclosure, the borrower transfers ownership of the commercial property to the lender voluntarily. Instead of going through a lengthy and costly foreclosure process, the borrower willingly gives up the property to satisfy the debt.
This option can have a positive outcome for the borrower, who may not suffer some of the consequences of foreclosure. This is especially true if the lender agrees to release the borrower from any further obligations associated with the mortgage loan.
Your Expert Partner in Foreclosure Law
The outcomes of the reinstatement, redemptions, and friendly foreclosures will vary on a state-by-state and case-by-case basis. If you are a lender weighing your options, your first step should be to consult a foreclosure expert to guide you through your options and help you determine the best course of action to maximize a return on your assets.
At Total Lender Solutions, we advocate for lenders looking to maximize recoveries on defaulted loans. 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. Contact us today for a consultation about your commercial real estate properties.
