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Taking action when a business defaults on a real estate loan

On Behalf of | Feb 14, 2022 | Commercial Real Estate

Loaning money for the purchase of commercial real estate is different from offering a mortgage for someone’s primary residence. As important as a business’s facilities may be to its operations, a business’s property won’t have the same emotional value that a primary residence would. It also doesn’t have the same legal protections.

Foreclosing on a residential property can be a very lengthy process. Foreclosing on a commercial property is also legally complicated, but there are fewer restrictions because it isn’t someone’s residence. A commercial foreclosure is sometimes necessary when a client defaults on a commercial property loan.

What does the foreclosure process involve?

To foreclose on a property, you first have to ensure that the circumstances meet the requirements set in the commercial real estate loan. Once a customer has missed a specific number of payments or fallen behind by a certain number of days, you can then take punitive action against them.

Typically, the first step is to send written notice to the property itself and to the official address for the business. Giving the business an opportunity to redeem the loan is crucial. They may be able to catch up after falling behind once they close a big deal. In some cases, you may want to consider renegotiating along with them so that they can retain the property and catch up on those missed payments later.

If you cannot settle the issue after providing them with the notice of their default, you will then need to take them to civil court. The foreclosure process in court is typically straightforward, as there will be clear documentation of your agreement and of the payment that the business has made or not made on the property. After a judge’s ruling, you can then remove the tenant from the property and consider your options for relisting it later.

Understanding the necessary steps in a commercial real estate foreclosure can help you recoup your losses when a customer stops paying their loan.