subject: Importance Of The Commercial Loan Review In Loan Modification [print this page] The commercial loan review has two contrasting meanings for the lender and the borrower when they are attempting to reach an agreement on loan modification. Loan restructuring is being pushed by bank regulators, such as the Federal Reserve and the Federal Deposit Insurance Corp. (FDIC), because they know that this will lead to better results for both parties.
It is the contention of the financial regulators that many of the commercial property owners are only experiencing a temporary setback in their finances and that they are actually willing to go on paying for the mortgage if this is made possible. They also know that providing the borrowers with some room for recovery would be advantageous for the banks and the economy in the long run. Naturally, the regulators also pointed out that even if they have expressed their support for restructuring the loans, this does not mean that the lenders will disregard the basic rules for assessing risks and approve all applications. It would not benefit anyone if a commercial loan modification is provided to a business that has lost its viability and when the foreclosure is unavoidable.
Basically, what the bank regulators are suggesting that banks should do is to expand their creativity when trying to look for ways to help the businesses that still have a chance of surviving the crisis. This is where the commercial loan review comes into play. This is the method of appraising the capability of the property owner to come up with the modified mortgage payments. Some of the factors that the lenders have to consider include the payment history, the flow of cash into the business, the availability of guarantors that can take over if the borrower fails to pay, and the condition of the market. In simple terms, the commercial loan review that the lender will perform will play an important role in the approval of the workout.
Meanwhile, a different kind of commercial loan review is conducted for the borrower by a loss mitigation professional or consultant. This activity will focus on the original loan agreement because experts have discovered that 80 percent of the loans that were released for commercial properties during the prosperous years in real estate contained flaws. These flaws are transgressions against the laws and regulations that have been put in place to protect the borrowers from the abusive practices of some lenders. Such violations have serious penalties, such as requiring the lender to return to the borrower all of the interests that have been paid since the start of the loan. Moreover, the bank would not be able to apply any of the provisions contained in the original agreement and this includes repossession or foreclosure of the property. Hence, the borrower would have a strong negotiating position if such violations are discovered in the loan documents.
The presence of such violations will also be helpful for the borrower if the foreclosure proceedings have already started. The court will freeze the proceedings until such time that a decision has been made regarding these accusations. The commercial loan review is therefore a very potent weapon for the property owner in convincing the lender to grant a loan workout.
by: Michael Bartonolis
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