For hard money lenders who are faced with delinquent borrowers, we suggest that commercial foreclosure should generally be considered as a last resort when addressing a breach of obligation. Foreclosures are time-consuming and can be expensive, while alternative resolution options can sometimes lead to outcomes that nobody desires.
The best way to keep borrowers current and avoid foreclosure is to plan ahead. At Total Lender Solutions, we’ve helped hundreds of clients complete foreclosures. Below are some common reasons we’ve seen that commercial real estate goes into foreclosure.
Common Reasons Commercial Real Estate Goes into Foreclosure
The foreclosure process begins when a borrower goes into default. Below are some common causes that may result in a borrower skipping a payment.
High Vacancy
Due to the economic and cultural changes brought about by the COVID-19 pandemic, many commercial properties are changing how they operate. Office vacancy, for example, still remains below the industry average in 2019, meaning that owners have been forced to either reutilize their spaces or go into default. If borrowers are unable to fill their vacancies and subsequently pay their mortgage, this may lead to foreclosure being issued.
Mismanagement
Poor planning or mismanagement at the onset can lead to problems paying the mortgage down the line. Oftentimes, borrowers may mislead lenders into believing that they have an adequate business plan when they do not. Improper budgeting can lead to financial instability and foreclosure risks.
Regulatory Breaches
Foreclosures are not only triggered by a failure to stay current with payments but by any breach of contract. Some common breaches include failing to pay property taxes or non-compliance with laws, zoning regulations, or building codes. This can result in fines or legal proceedings, potentially leading to foreclosure.
Financial Difficulties
Like any industry, commercial real estate is unpredictable and subject to adverse events like economic downturns, market fluctuations, or unexpected financial challenges which can impact a borrower’s ability to make timely payments.
Reasons to Seek Out a Commercial Foreclosure
If you are a lender who wishes to seek alternative resolution solutions, popular options include offering a temporary stay on collection, loan modification, and refinancing, among others. We believe that resolving borrower’s difficulties before they lead to foreclosures is the best course of action for everyone involved
There are many cases in which a default cannot be resolved and foreclosure is absolutely necessary. When that happens, lenders should seek out a trusted foreclosure partner to help complete the process efficiently and under state and federal compliance.
A Trusted Partner in Seven States
Because the foreclosure process varies from state to state, lenders must partner with a foreclosure expert that is versed in the compliance laws of the state where their property is located. Total Lenders Solutions has expertise in:
At Total Lender Solutions, we are dedicated to helping lenders optimize recoveries on defaulted loans. With a track record of over 15 years, our team of skilled real estate professionals and legal experts excels at simplifying complex processes and providing clear resolutions for institutional and private lenders.
We offer comprehensive solutions and seamless communication throughout the entire foreclosure journey, from pre-foreclosure and notice of default to the final sale. Our unwavering commitment and determination guarantee that our clients can trust in achieving a successful outcome.
