Have you been struggling to fulfill your mortgage payments recently? You’re not the only one!
Commercial property owners across America have been struggling to keep their mortgage payment streaks going. There can be many reasons attributed to the general decline in financial security for commercial businesses in the country. Similar to how it is for regular American adults, American business owners are also finding themselves in deep water due to worsening personal and economic conditions. Most property owners who default on their mortgage payments do so because of reasons like income reduction, debt, financial emergencies, and unprecedented personal problems.
As a result of commercial property owners being unable to fulfill their mortgage liabilities, many commercial properties are increasingly at risk of foreclosure. The rate of foreclosures across the country continues to rise every year. The good thing is that foreclosures aren’t the only course of action your lender can take. You can get them to forgo foreclosure by offering a loan workout plan.
What are Loan Workouts?
Loan workouts are exactly what they sound like — agreement plans that “work out” loan terms between a lender and a defaulting borrower.
Foreclosures aren’t ideal for either party involved. They’re harmful to the property owner for obvious reasons, but they’re also an annoyance to the lender. So, when neither party wants to opt for a foreclosure, they attempt to come to an agreement. This agreement often takes the form of a loan workout plan. The two parties discuss how to restructure or modify the loan terms in order to come to a more suitable agreement for the borrower.
Loan Workout Strategies
There are a lot of ways that a lender may agree to restructure the loan terms. You should also remember that every loan workout plan and its process will be unique to each lender. There’s no obligation for your lender to agree to a loan workout plan in the first place, either. So, you’ll have to charm your way into getting your loan terms modified.
Let’s start by looking at the most effective loan workout strategies that you should know about.
Your lender can agree to reduce the number of payments you’re obligated to make. They can also lower the interest rate that you’re charged on the payments. These actions will be temporary, i.e., for the short-term, but they can significantly help you get back on track. Your lender will likely only agree to reduce your payments or interest rate if the cause of your default is also temporary.
Forbearance is often the first strategy borrowers try to use since it’s seemingly the most helpful one. Your lender may agree to forbear your owed/missed payments for a fixed period of time. This act is called forbearance since you won’t be required to make any payments during the specified time period. The purpose behind this strategy is to give you a chance to stabilize your income again and bounce back stronger. When you’re able to save up for a while, you’ll have enough money to make good on your missed payments.
Don’t make the mistake of assuming that forbearance equals forgiveness. Your missed payments will not be forgiven if your lender agrees to forbearance; they’ll only be postponed. You’ll still be required to pay the complete overall payments that the original loan agreement established. Forbearance periods don’t typically last for over a year.
In cases where the borrower’s cause of defaulting isn’t temporary, the lender might agree to restructure or modify the loan terms permanently. Any factor that directly influences your mortgage payment amount can be changed by the lender. These factors can include the interest rate, payment amount, or the term itself. This process is also called loan modification, and it is permanent.
One concern with this strategy is that it could incur additional costs for you. The lender might charge you for the structuring since the process impedes the previously agreed-upon loan terms. Make sure to discuss every detail of the agreement with your lender before you sign off on it.
Lastly, the lender could refuse to make the aforementioned changes to the terms and opt for additional collateral instead. Collateral refers to any belongings or possessions a borrower has that the lender can hold onto until the mortgage payments are completed in full. The lender could have you provide an additional amount of collateral in exchange for your missed payments. You can use cash, property shares, private company shares, marketable securities, and other assets as collateral for the deal.
Loan workout plans are highly helpful to commercial property owners who are unable to keep up with mortgage payments. You can consult with a commercial hard money lender or real estate lawyer to gauge the legality and applicability of the loan modification strategies you intend to implement. The best course of action for property owners is to prevent foreclosure from occurring in the first place. So, try your best to make timely payments, keep a stable credit score, and reduce any debts you may have. Good luck!
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