Principles of the Commercial Loan Review

Posted on March 31, 2010 @ 8:59 am

Commercial Loan Modification

The owner of a strip mall, shopping center, office building, apartment complex, multi-tenant building and other kinds of commercial properties, can workout with the lender a commercial loan modification agreement.  The changes to the commercial loan may cause a reduction in the interest rates, the lengthening of the loan term,  interest-only payments for a certain period of time, or a discount in the outstanding amount.  However, before the negotiations can start for possible changes to the terms of the mortgage, a commercial loan review is performed by the lender.  This review will entail the examination of the various documents of the borrower and  various information. 

The commercial loan review will involve both the borrower and the lender and is necessary before a commercial loan modification could be agreed upon by both parties.  It should be pointed out that the bank regulators are encouraging the restructuring of the loans because they know that a large number of the borrowers do not desire to default on their payments but the economic situation has only made them temporarily incapable of coming up with the payments.  Several of the owners of commercial properties may only need some time to get back on track while others may require a permanent adjustment to the loan terms.  The commercial loan workout will be advantageous to the borrower because it will forestall the repossession or foreclosure of the property.  It will benefit the lender because the expenses required a foreclosure are avoided and the payments will still be made by the borrower albeit at lesser amounts.  During the crisis in the commercial real estate market, the lender also avoids being stuck with assets that are very difficult to sell if a commercial loan modification is allowed.

The commercial loan review process is used to determine if the business has the capability to continue with the mortgage if some changes to the terms are made.  The bank or lender will examine various factors during the process such as the availability of guarantors, the conditions of the market, the payment history, and the business cash flow.  

For the borrower, the commercial loan review procedure is very different from that which is conducted by the lender.  Loss mitigation attorneys and experts usually help the property owner in this procedure by carefully scrutinizing the various details of the original loan agreement.  This is because it had been observed that during the boom years in commercial real estate, there have been violations made by some lenders against certain laws and regulations that were designed to safeguard the rights of borrowers.  If such violations are discovered in the loan contracts, the lender would not be able to enforce all of the provisions found in the agreement, and this includes foreclosure.  The lender may even be required to return to the borrower the interests that have been paid from the beginning of the loan.  Therefore, the commercial loan review can provide the borrower with powerful negotiation tools that can hasten the lender’s approval of the commercial loan modification application. Check out to get more details

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