SNDAs are useful tools for commercial real estate lenders and tenants, and establish a relationship between these two parties which might not have existed without them. While lenders often seek them out when mortgaging to property owners, if it is a lender’s first time foreclosing on a property, the presence of an SNDA in the agreement might lead to confusion.
If there is an SDNA clause in a lender’s agreement, there are several things to consider when foreclosing on a property, and these considerations may help a business decide how to structure their SNDA. A foreclosure expert is the best way to navigate the specifics.
What is an SNDA?
SDNA stands for Subordination Non-Disturbance and Attornment. It essentially guarantees that if the landlord defaults, neither the landlord nor the lender can cancel a tenant’s lease. Each individual word references a separate provision; some lenders may desire some provisions and not others, depending on their goals.
Subordination
If there is no provision appointing priority to one agreement over another, agreements will typically follow the first-in-time, first-in-right model. Order of priority indicates how insurance policies are doled out in an adverse event. The Subordinate provision ensures that the lender has a first lien right, making any leases subject to the mortgage. The lender is then free to foreclose on the property.
Non-Disturbance
The Non-Disturbance provision is the piece of the agreement that appeals to tenants. In the event that the landlord defaults on his loan and the lender must foreclose the property, the lender will honor the tenant’s lease. This prevents the lender from evicting a tenant that may have taken advantage of the favorable deal that comes with a mostly vacant property.
Attornment
The Attornment provision is the one that likely appeals to lenders. If a property is foreclosed upon, the lender becomes the new landlord, if only temporarily. The tenant agrees to this and promises to honor the lease, even if the landlord is no longer a part of the agreement.
Why Do Lenders Want SNDAs?
Tenants want SNDAs because they assure that tenants can continue to lease their property as long as they keep their payments current, and external circumstances will not see them evicted. Tenants can also avoid paying a higher rent, should a lender come to own the property.
Lenders benefit from SNDAs because this gives the mortgage priority over individual leases. They can transfer ownership of the property from one hand to the other without fearing the tenants will abandon their leases.
SNDAs are typically hard to attain because landlords don’t want them, and it may be difficult to get them to agree to a mortgage with an SNDA attached. Landlords might agree, however, if they are eager enough for the loan. Additionally, tenants are more likely to lease knowing they have the protection of an SNDA.
How Do SNDAs Affect the Foreclosure Process?
Should a lender need to foreclose on a property under an SNDA, much of the process is the same, with the addition of extra checks and guardrails to be processed to ensure that lenders comply with the non-disturbance part of their agreement. This, of course, means excessive paperwork.
Lenders might consider hiring a team that processes foreclosures. A team can handle leases and streamline the foreclosure, clearing the lender’s team to focus on their customers.
Total Lender Solutions Processes Commercial Property Foreclosures
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.
