Commercial Real Estate Foreclosures Harming Businesses
While residential mortgages take headlines, commercial foreclosures are causing significant damage to businesses nationwide. Business owners should seek help to avoid the consequences of foreclosure.
August 09, 2012
While residential home mortgage foreclosures are taking up most of the headlines, many Americans are unaware of a significant crisis in commercial foreclosures that affect businesses in California and across the country. In fact, commercial real estate debt is close to one-third of the value of debt in residential real estate.Since the financial crisis, commercial foreclosure rates have skyrocketed and continue to remain high. As the effects of the financial crisis spilled into the general economy, businesses began to face a highly unfavorable environment, and many found it difficult to make mortgage payments on their real estate properties. Smaller retailers and mom-and-pop stores have been hit particularly hard.
Analysts have seen a large increase in delinquency rates, despite the shorter time periods of many commercial mortgages. Financial tools like interest rate guarantees, loan restructuring and credit easing may not be enough to save failing businesses.
Consequences of Foreclosure
Like residential foreclosures, commercial loan foreclosures have major financial consequences for families. Unlike the residential market, a commercial foreclosure often destroys the business, resulting in an even wider negative impact on the community at large.
Struggling business owners should pay careful attention to financial strains that threaten their business's ability to make commercial mortgage payments. Seek help from the mortgage company, lenders and government assistance agencies. Take precautionary measures like refinancing or shedding excess inventory. A commercial loan foreclosure is the end of the line for many businesses and should be avoided at all costs.
If guarantees by individuals are a part of the situation, you should contact a restructuring or insolvency attorney. There are things that can be done to give you leverage in the future if the lender threatens to exercise its rights under the guarantee, and often that leverage results in your making a better deal with the lender, or more importantly, avoiding a personal bankruptcy.
If your business is at risk of defaulting on a commercial real estate mortgage, consider contacting an experienced restructuring/insolvency attorney to discuss your legal options and adopt a plan to overcome the crisis.
Article provided by The Lobel Firm, LLP
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