The Advantages of the Commercial Loan Review
by author on Feb.24, 2010, under Main Articles
Individuals or companies that own commercial properties, such as retail shops, shopping centers, strip malls, apartment complexes and warehouses, can benefit from commercial loan modifications if they are no longer capable of coming up with the installments. However, one of the prerequisites for such modifications is a commercial loan review. The two parties have different purposes for a review so that a loan workout could be reached that would be a win-win situation for both lender and borrower. For the borrower, this review is required to analyze the various details of the original loan contract to discover any violations made by the lender against certain regulations. On the other hand, the lender will require a commercial loan review to assess the capability of the borrower to repay the loan after a loan restructuring.
The lender usually conducts a commercial loan review first before permitting the negotiations for the restructuring of the debt to start because this will show if the individual or business can really afford the monthly payments after they have been reduced. The review will also look into various information regarding the borrower, such as the cash flow of the business, the payment history, and the presence of potential guarantors. This review is one of the factors that the lender will consider when deciding whether to approve the loan workout or not. In other words, the lender will not waste any time negotiating and then allowing the changes if in the end, the borrower will just default on the mortgage.
Meanwhile, a commercial loan review has a vital and different purpose for the borrower. The property owner often gets the services of loss mitigation experts and professionals to examine the details of the original loan contract to see if the lender had violated any laws and regulations on the protection of borrowers’ rights. During the boom years when commercial loans were being approved in large quantities, many lenders had taken some shortcuts and had neglected to comply with laws that were established to protect borrowers from lender abuse. If the contracts are found to contain such violations, it would be illegal for the banks to apply any of the provisions that are found in them, such as foreclosure. Therefore, this is a very important negotiating tool for the borrower that could speed up the approval process.
And if foreclosure proceedings have already been filed by the bank, a commercial loan review can also provide assistance. If the previous agreement contains such violations, the court may put the foreclosure process on hold until such time that a judgment has been rendered on the claims of the borrower. The property owner is not even required to continue with the monthly installments although it would be prudent to keep these payments in a certain account, just in case the ruling of the judge is for the lender.
Therefore, a commercial loan review is important for both borrower and lender although they have divergent purposes. For the lender, it is used to assess the borrower’s creditworthiness, but for the borrower, it is utilized to find violations in the previous loan agreement.
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