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Federal Bank Could Foreclose on Commercial Properties From Bailed-Out Bear Stearns

August 6, 2010

As San Bernardino commercial real estate loan modification attorneys, we were interested to see an article on a new wave of foreclosure that could come directly from the federal government. According to an August 3 article from the Wall Street Journal, The Federal Reserve Bank of New York is on the verge of deciding how to handle its "toxic" real estate portfolio, acquired when it took over assets from failed investment firm Bear Stearns in 2008. That $29 billion portfolio includes 50 commercial real estate loans and 9,000 residential loans, which are collectively worth about $5 billion, the article said. The Fed has already foreclosed on one commercial property, a mall in Oklahoma that is now up for sale, as well as homes in four states.

The New York Fed and its nationwide parent, the Federal Reserve Bank, don't generally make direct-to-consumer loans. According to the article, being thrust into that business by the Bear Stearns bailout puts the Fed in a tricky position, with conflicts between its role as a steward of the economy on the one hand and its need to dispose of the assets responsibly. Politics could also affect its work. The commercial loans lost 35% of their value in the two years before March of 2010, the article said -- but the Fed wants to avoid selling those assets at discount prices because it might hurt the economy. Buyers have been found for only $1 billion of the loans, and in a down market, the Fed could be stuck with properties it can't sell. It may also hesitate to modify commercial real estate loans that are joint ventures, because restructuring could take away its control.

In a way, our Irvine commercial real estate loan modification lawyers are gratified to see the Fed struggling with the same issues facing lenders and private investors in commercial real estate. Understanding those issues at one government agency could help guide better public policy from other agencies. But restrictions on modifying loans are bad news for everyone involved. If the Fed can't sell its properties, foreclosing doesn't make much sense. But if it also can't restructure some of those loans, it may have no other realistic choice but to foreclose. This is bad for the Fed and, by extension, taxpayers because it weighs us down with liabilities. Of course, it is also bad for the property owners who are foreclosed on, who lose their investments and their properties. And it's also likely to disrupt things at the businesses using those properties -- retailers, offices, hotels, multi-family housing and more.

Howard Law PC represents commercial real estate investors who are struggling to address their non-performing loans before reaching foreclosure. The down commercial real estate market has affected many CRE loans, particularly those made in the "boom" years. As property values have dropped, property owners can no longer refinance, and lease income is often not enough to make the payments. As a result, many investors are seeking loan modifications that allow them to wait out the market. Our Los Angeles County commercial loan modification attorneys help property owners negotiate those workouts with their lenders, using substantial experience gained by representing private homeowners throughout the residential housing crisis. We believe this is a better solution for everyone involved than foreclosure, and we work hard to convince lenders to see it the same way.

If you're holding a commercial real estate loan that you know will need restructuring, Howard Law can help. To learn more or set up a free consultation, call us today at 1-800-872-5925 or send us a message online.