Abusive Servicing Practices Not Limited to Consumer Mortgages

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Lenders’ use of deceptive or inaccurate practices is not limited to the home mortgage market. Similar issues challenge entrepreneurs, says leading commercial debt resolution firm Covendium.

commercial debt restructure

Covendium specializes in comprehensive commercial debt restructuring and resolution.

We understand that banks are struggling under the weight of the tremendous distress in the commercial real estate market, but lender errors only prolong the resolution.

While the media continues to focus its attention on the wide-ranging accusations of robo-signing and other shady practices that banks engaged in to foreclose on troubled residential borrowers, it rarely brings attention to the fact that similar practices exist in the commercial market as well. Covendium, the nation’s largest commercial debt resolution and advocacy firm, has found instances of miscalculation of principal, interest and fees; assertion of claims unsupported by the loan documentation; and overcharging for services related to commercial loans.

“This issue is not just about consumer mortgages,” says Cody Smith, Senior Managing Director for Covendium. “The first thing we do when we start our analytics work for a new client is recalculate their principal, interest and all other fees billed by the bank. We’ve seen errors on more than one occasion, and won’t even start our negotiations with the bank until all errors are resolved.”

The New York Times recently reported that findings by the United States Trustee Program, the component of the Department of Justice responsible for overseeing bankruptcy cases, have indicated that in addition to sending inflated deficiency notices, banks often assert claims that are not supported by home mortgage loan documentation. Smith says these findings are applicable to the commercial market as well, noting that in some cases, Covendium has seen banks argue claims that are not supported by law or banking regulation.

“We understand that banks are struggling under the weight of the tremendous distress in the commercial real estate market, but lender errors only prolong the resolution,” continues Smith. “Clients come to Covendium to help them find a way to work with the bank; learning that the bank has made errors creates mistrust. However, if approached properly, dealing with the error upfront may lead to a more beneficial resolution, as the banks never want to be perceived as purposely making errors.”

Covendium also notes that lenders may overcharge borrowers for legal work, insurance, appraisals and property inspections. And while banks may claim that these fees are honest errors that amount to less than 1% of their loans, Clifford J. White III, Director of the Executive Office of the United States Trustee Program, estimates that overcharging for residential lending could be as much as ten times more frequent than the banks have acknowledged. The frequency of overcharging in the commercial lending market remains unclear.

“Whether it is a homeowner facing foreclosure, or an entrepreneur being pressured by their bank on a commercial property loan, there is never a downside in asking for a full accounting of what the bank claims is due,” Smith recommends. “Most people just accept what is provided by the bank, thinking that computer automation prevents errors.”

Commercial borrowers who suspect they are the victims of lender miscalculation are urged to enlist the assistance of a third-party negotiator. “Working with a professional debt resolution firm empowers the debtor with information to ensure that their deficiency calculation is accurate, and in many instances, negotiate a significantly better resolution than the entrepreneur would achieve on their own,” concludes Smith.

For more information about how Covendium can help commercial debtors negotiate with their lenders, or any of Covendium’s products or services, call them at (407) 284-4000, or view them on the web at http://www.covendium.com.

About Covendium
Covendium specializes in comprehensive commercial debt restructuring and resolution for clients whose financial model has been destroyed by debt service payments that have become unsustainable.

For some clients, all they need is an experienced negotiator to provide their lender with the reality of the financial situation and the tool-set to restructure their obligations. For other clients, Covendium may assist in the replacement of the debt from a bank to a private funding source.

Their team of professional advisors has successfully restructured billions in transactions, with dozens of banking institutions (including major national, regional and community banks) and over 30 separate non-bank financial counterparties.

Bad things happen to good people. Covendium is a premier national debt resolution firm that helps their clients with everything from avoiding bankruptcy in Chicago to commercial debt restructuring in Charlotte to eliminating personal guarantees in Miami to avoiding commercial foreclosure in Phoenix.

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Jonathan Gorman
Covendium
(407) 284-4380
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