Federal rules could change the bleak landscape for commercial real estate investors who are currently underwater, Inside Tucson Business reported May 7. Our Ontario commercial loan modification attorneys were extremely interested to read about this underpublicized rule, which could make life easier for owners in the troubled CRE market. According to the article, a joint policy statement was issued in October and reissued in February by the Federal Reserve Board, the FDIC and other federal regulators. It says borrowers in a "deteriorating financial condition" who are still current on loan payments and willing to repay their loans should still be considered creditworthy borrowers. And as creditworthy borrowers, the statement said, they should not be subject to "adverse classification solely because" they are underwater.
An increasing number of CRE owners are underwater, which means their loans are worth more than the value of their buildings. Earlier this year, Elizabeth Warren, the chair of the Congressional Oversight Panel watching the financial industry "bailout," predicted that half of all U.S. CRE would be underwater by the end of this year. This is a problem, the article noted, because lenders can generally demand repayment when loans dip underwater. That can cause serious problems for borrowers who are losing rental or lease income in the recession. Experts said the rule should stop lenders from writing down loans solely because of the buildings' appraisals, which banks may do because it allows them to add to their cash reserves. However, multiple experts added that banks have generally been ignoring the rule, foreclosing or demanding full payment from borrowers who are still making payments on time.
As Santa Ana commercial real estate loan modification lawyers, we're disappointed but not surprised to see so many people with the same complaint about lenders' behavior. In our experience, lenders have repeatedly placed their short-term financial needs ahead of the most sensible long-term goal, as well as the needs of their clients. We saw this in the residential real estate crisis, in which foreclosures soared despite the financial losses and maintenance obligations they created for banks. Now, we're seeing lenders in the commercial arena foreclose on viable loans. The article suggests that this is motivated by lenders' need to liquidate their assets. By demanding repayment, lenders force properties into default or siphon all of the capital out of the investors who still have it. They also take on yet another foreclosure at a time when CRE prices are very low.
Howard Law PC represents commercial borrowers who are caught in this kind of situation with their lenders. We help borrowers negotiate loan workouts on commercial properties, staving off defaults brought on by low rents, high vacancies, underwater properties and other factors outside the borrower's control. Our San Diego County commercial loan modification attorneys believe it's better for all parties for the loan to stay alive when that's financially feasible, so the lender can recoup its investment and the borrower can avoid a financially damaging foreclosure. To help achieve that goal, we negotiate aggressively with lenders, using current market factors as well as the details of each situation to make our case. Whenever appropriate, we can also use litigation to make our point.
If your commercial property's value has fallen below what you owe and you need help convincing a lender to take action, you should call Howard Law. To set up a free, confidential consultation, please contact us online or call us toll-free at 1-800-872-5925.