Mortgage Modification - Commercial Modifications

A commercial loan modification, also known as a "workout" loan can be requested by a business owner who is unable to refinance the loan. If the business has undergone a hardship or had other occupational or operational problems and cannot make their loan payments, a modification may be an option to prevent the loan from going into default.

First you need to decide whether or not you're going to hire an attorney or company to negotiate the modification or if you're going to do it yourself. This can be a really tricky situation and with so many legalities, it can get confusing very fast. A private attorney is a good option for mortgage modification on commercial property and if you face legal action, a private attorney will be able to represent you in court.

First of all you want to review all the documents related to the loan. Make sure you gather up any documents that have reference to the loan. You also want to know if the loan is "non-recourse". If you default on the loan, the lender will be forced to foreclose on the property however with the nonrecourse, they cannot seek additional repayment or sees other collateral. The lender will want their best interest to be able to get the money needed from the property so you want to understand all of your rights, benefits and legalities before entering into the modification.

You'll also want to know if the loan even provides for modification. Some loans may not be able to be modified. If the loan is 60 days delinquent and foreclosure is not imminent and the borrowers not bankrupt, the loan might be able to be modified.

You'll need to bring the following documents to your lender:

• Your current business plan
• Financial statements
• Tax returns
• Letter of hardship

The letter of hardship should be written properly to explain your reasons for requesting a modification. This letter needs to be unemotional, intentional, honest and straightforward. If you have trouble writing this type of letter, your attorney or mortgage modification counselor should be able to assist you.

From here, you'll need to meet with your lender either with your attorney or a counselor. If the lenders willing to modify the loan they will extend the loan term in order to lower your payments to the point of affordability. A modification is a temporary fix. Lenders will need to know that you'll be able to make up the difference and resume normal loan payments at a specific time.

The cost of the modification is also something to consider. Most businesses do not want to disrupt their business cash flow so they'll need to speak to the lender about including the closing costs into the new loan amount. If lenders will not comply, you may need to change or operation as needed for the short term to cover closing costs and fees.

The lender will determine a new payment plan. You have to keep open communication between yourself and the lender during this time. Any dishonest information, numbers or timelines could cost you a lot of money and potentially the modification itself. You need to negotiate and renegotiate any problems that might arise in the future. Talk about the steps you've taken so far such as reviewing documents, speaking to an attorney and come with solutions for both parties.

Once all of the documents have been settled and you have been approved you'll need to sign a new agreement. Make sure you get everything discussed in writing and have a new paperwork signed and witnessed.

Mortgage modification for a commercial loan is available and possible but make sure you have the proper documents, your honest with your lender and find a mediator in the middle to help you facilitate the transaction, protect you legally and help you understand the entire process.

For more information on mortgage modification and mortgage modification mediators feel free to browse our associate at Advantage Legal Group. For commercial loans and information contact Signal Realtors today. 

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