Kevin Levine, EVP, Strategic Asset Solutions Asks, "Are You a Candidate for a Commercial Loan Modification?"

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"Many borrowers seeking to obtain modifications of their commercial real estate loans are not good candidates for such loan modifications," stated Kevin Levine, Executive Vice President of Strategic Asset Solutions (SAS) of Woodland Hills, California. "In our initial interviews with prospective clients, we are able to draw upon our experience dealing with a wide variety of lenders in advising whether a loan modification is a realistic alternative," Levine said. "Many borrowers mistakenly believe that lenders will modify loans in this market environment for any borrower; but that is not correct. A lender must be provided with a convincing reason to enter into the loan modification, and must perceive that it will benefit from it."

Many borrowers seeking to obtain modifications of their commercial real estate loans are not good candidates for such loan modifications

“Many borrowers seeking to obtain modifications of their commercial real estate loans are not good candidates for such loan modifications,” stated Kevin Levine, Executive Vice President of Strategic Asset Solutions (SAS) of Woodland Hills, California. “In our initial interviews with prospective clients, we are able to draw upon our experience dealing with a wide variety of lenders in advising whether a loan modification is a realistic alternative,” Levine said. “Many borrowers mistakenly believe that lenders will modify loans in this market environment for any borrower; but that is not correct. A lender must be provided with a convincing reason to enter into the loan modification, and must perceive that it will benefit from it.”

Levine explained that there are a number of key factors that a lender will consider in determining whether or not to modify a commercial real estate loan. “The most important point is whether the current value of the property is more or less than the amount owed on the loan,” he said. “If the property is worth more than the debt, the lender generally is inclined to proceed to collect its loan balance through a foreclosure sale.” Levine explained that a second critical factor is whether or not the property is generating a positive cash flow. “If funds are available to meet the debt service obligations, the lender normally would not conclude that the loan should be modified,” Levine stated.

“A third consideration on the part of the lender is whether there are financially strong borrowers or guarantors with full recourse liability for repayment of the loan. If that is the case, the lender ultimately can recover the loan balance in full, even though the sale of the secured property may result in a deficiency,” he said.

Levine commented that if these three factors are present: the property value being greater than the loan balance; the property evidencing a positive cash flow; and the borrowers or full recourse guarantors being financially strong, there usually is little likelihood of a loan modification being granted. “An exception would be the existence of a substantial amount of deferred maintenance or the need for significant capital improvements,” Levine added. In such a case, the lender may be willing to reduce the interest rate and/or allow for interest-only payments for a short time, say 18 months, provided that the amounts saved from the payment reduction are applied to correcting the deferred maintenance or making the capital improvements. “In this scenario, the lender benefits from the loan modification through the improvement in the property’s condition.”

“A perfect candidate for a commercial loan modification is a loan whose balance is greater than the value of the secured real estate; the property is producing a negative cash flow and is unable to service the debt; and there are no financially strong borrowers or guarantors,” Levine concluded.

SAS 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 SAS 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, SAS 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.

SAS is a member of the Peak Corporate Network headquartered in Woodland Hills, California. In addition to commercial loan modifications, the Peak Corporate Network offers mortgage lending, loan servicing, residential short sale, 1031 exchange, 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.

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