Bankruptcy Reorganizations Increasingly Utilized by Commercial Real Estate Loan Borrowers

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“Over the past few months, we have been seeing an increase in Chapter 11 bankruptcy reorganizations as a tool utilized by commercial real estate borrowers in their negotiations with lenders,” stated Kevin M. Levine, Executive Vice President of Peak Asset Solutions (http://www.peakassetsolutions.com). “More and more loans financed on a short-term basis of 5 to 7 years are maturing, but lowered property values are a barrier to refinancing,” he said. “So if the borrower and lender cannot come to agreement and the lender is threatening foreclosure, the borrower may have no alternative but to seek bankruptcy court protection. The automatic stay resulting from the bankruptcy petition filing will buy time for the borrower to seek alternative investor financing.”

If the borrower and lender cannot come to agreement and the lender is threatening foreclosure, the borrower may have no alternative but to seek bankruptcy court protection.

“Over the past few months, we have been seeing an increase in Chapter 11 bankruptcy reorganizations as a tool utilized by commercial real estate borrowers in their negotiations with lenders,” stated Kevin M. Levine, Executive Vice President of Peak Asset Solutions (http://www.peakassetsolutions.com). “More and more loans financed on a short-term basis of 5 to 7 years are maturing, but lowered property values are a barrier to refinancing,” he said. “So if the borrower and lender cannot come to agreement and the lender is threatening foreclosure, the borrower may have no alternative but to seek bankruptcy court protection. The automatic stay resulting from the bankruptcy petition filing will buy time for the borrower to seek alternative investor financing.”

Levine explained that if the lender’s loan documents are legally sound, it may file a motion to lift the stay allowing it to proceed with the foreclosure. However, if the borrower can submit a feasible plan to pay the lender in a reasonable time, the bankruptcy court may give it that opportunity. The speedy non-judicial foreclosure that the lender was contemplating will be delayed for at least some period of time, and the lender now is faced with additional legal expense. Those negative prospects may persuade the lender to become more reasonable with regard to negotiating a restructure and extension of the loan.

Levine pointed out that there are a number of negative aspects to any commercial real estate bankruptcy reorganization. “A Chapter 11 proceeding is a relatively expensive additional burden for a borrower already strapped for cash, and the filing and attorney fees must be paid up front,” he said. “If there is a strong guarantor who has unconditionally agreed to repay the loan, the lender still will be free to go after that guarantor. And the borrower may not be able to submit a feasible reorganization plan or find alternative financing during the period in which the stay is in place, so the time and money spent will not have achieved any permanent advantage,” Levine added.

Peak Asset Solutions offers commercial loan modification and short sale services in California and throughout the country. The company’s personnel bring extensive commercial real estate expertise to each assignment, including market analysis, valuation, legal, and negotiation experience. Each borrower’s unique lending situation is fully analyzed, and the borrower is assisted in preparing current operating reports and projections. Then, Peak Asset Solutions drafts and submits to the lender a loan modification proposal. That proposal may include a principal reduction, interest rate reduction, and waiver of penalty charges. In those instances where a loan modification will not work to the mutual benefit of the borrower and lender, we will attempt to broker a short sale of the commercial real estate at a significant discount from the loan balance, or will seek to negotiate a sale of the note to a third-party.

Peak Asset Solutions is one of the entities in the Peak Corporate Network headquartered in Woodland Hills, California. In addition to commercial loan modifications, the Peak Corporate Network entities offer mortgage lending, loan servicing, short sale services, 1031 exchange services, escrow services, trustee work, foreclosure services, and real estate sale brokerage services. These services are available primarily throughout the Western United States for both residential and commercial real estate properties and loans. For more information, visit http://www.peakcorp.com.

The Peak Corporate Network is a brand that represents a group of separate legal entities, each providing its unique set of real estate services.

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