Five Steps to a Successful Commercial Loan Workout

Obtaining a commercial loan workout can be a very labor-intensive process. Having all of your “ducks in a row” is key to a successful workout. For property owners who can’t refinance, have a balloon payment coming due, defaulted on their mortgage or facing foreclosure, a commercial loan workout can accomplish one or more of the following:

1. Reduce interest and/or principal amount

2. Extend reset period or maturity date to delay balloon payment

3. Defer payments

4. Temporary interest-only payments

5. Avoid foreclosure

Please review the following five steps:

1) Required Paperwork

The required paperwork is gathered from property owners. Documents needed: Rent roll, copies of expenses within the past year, rental agreements, copies of the mortgage note, etc. Not having all of the required documents could delay the whole process.

2) Research Analysis

Before a commercial loan workout is submitted to the lender, a financial snapshot of your situation is needed. The lender is mostly concerned with your ability to pay each month if your loan was restructured to more favorable terms. Determining the current market value, rental rates and recent comparable sales are also important factors to consider. After a review of the note is complete, a workout package is generated.

3) Lend Submittal

Once a confirmation of delivery is received from the lender, the submission package is forwarded to a workout specialist. Not confirming receipt of the workout package by the lender could mean having your file stuck somewhere in the mail room for weeks or “lost in neverland.”

4) Negotiation Process

The workout specialist reviews the package and presents a loan modification offer. Sometimes the property owner or third party workout firm will make counter offers until an agreement is excepted with favorable loan terms. The whole process from start to finish could take between 2 or 3 months to complete. Keep in regular contact with the workout specialist at the lender until a proposal is received.

5) Final Approval

Once the lender approves the newly restructured mortgage loan, a proposal is presented to the property owner for review. The owner can expect the following options: Deferment of payments, lower interest rate, extended maturity date, greater cash flow or reduction of principal. The lender can propose any combination of options. Lastly, the modified loan documents are signed by both parties to make the changes official.

Because so many commercial property owners are not able to meet their mortgage obligations, commercial lenders are now willing to modify their existing mortgage loans to prevent avoid foreclosure. The key to preventing a default is to be proactive by contacting your lender or seek the assistance of a third-party, professional commercial loan workout firm.

Commercial mortgage loans are much more complex than residential mortgage loans. Hiring a professional commercial loan workout firm can help you navigate through the negotiation process with your lender.