Defaulted on Your Mortgage? – What Commercial Property Owners Should Know

| December 9, 2014
Commercial Real Estate, Mortgage Defaults


While many businesses are slowly recovering from the U.S. economic downtown, attorneys continue to see business owners on the receiving end of default notices from their mortgage lenders. In addition to the fears associated with getting current on mortgage payments, many owners are uncertain about the processes involved in the event foreclosure occurs or what their potential options may be.

Initially, a commercial property owner behind on its mortgage payments will likely receive a default notice. The notice effectively starts the clock for the lender to exercise its contractual remedies triggered by default on the loan. In most cases, the commercial landowner has the ability to “cure” the default within a specific time set forth in the loan documents. For example, payment of the outstanding amounts due and owing may rectify the default, restoring matters to the way things were before.

Next, it is important to note that a property owner in default will likely have some time to work through certain issues with its lender. Lenders usually have a variety of resolutions in loan documents, in addition to foreclosure. Upon receipt of a default notice, in most instances a property owner will have more than nine months before losing property rights. Lenders differ on how aggressively they proceed following the initial default.

Finally, it is important to note that a lender does not necessarily want to go through a time-consuming and costly foreclosure only to end up owning a commercial property. As such, banks are often willing to enter into negotiations for a loan workout. It is therefore important for commercial property owners to be professional and responsive to communications with a loan officer.

Falling behind on loan payments can happen to any business. In the event a default occurs, it is important to act quickly and decisively, and to consult with your advisers to understand what options may be available to avoid losing a property to foreclosure.

Watch for upcoming posts focusing on options available to business owners in default on their commercial property mortgage.