An occasional review of fascinating matters in New Jersey law – by Justin Marcus Smith

Loan Modification and Foreclosure Workout

Tuesday 5 July 2011 - Filed under debt restructuring

If you are a small business owner, or if you are an investor in income -producing properties, you know just how hard this economic recession has been. If the property you own to conduct your business is generating less income than it was in 2007 and you are struggling to make your mortgage loan payments, you should consider loan modification. If you have missed payments and your bank is about to foreclose, you should consider a loan workout.

There is no reason to wait for foreclosure. Although the number of foreclosures is down slightly in 2011, banks are still struggling with the volume of foreclosures they need to process and the sheer number of resulting “REO” properties (i.e., bank-owned properties) on their books.

Foreclosures are expected to increase in 2012 and to remain a drag on the economy and property values while the market struggles to “clear” through at least 2014. There is a significant danger that if more distressed properties being used to run small businesses are foreclosed, the economy will lose even more small businesses, causing even more unemployment, and, in turn, even more foreclosures. This pattern is also very damaging to the tax base, making it even harder for municipalities and all levels of government to pay their own bills. It is in everyone’s interest to find a less destructive “workout” of the problems in the real property market. Banks have a key role to play by allowing debtors to restructure their debt, thus turning the properties back into “performing assets.”

Banks are beginning to show more flexibility in re-negotiating loans rather than taking ownership of empty properties they may not be able to liquidate anyway. Empty properties are usually harder to sell and are often damaged (e.g., frozen pipes) while waiting for a buyer.

If you are having trouble servicing your debt, do not simply give up and walk away. You have more options now than in years past to delay foreclosure, buy time to get your finances back in order, or to restructure your debt. If you are an employer, you owe it to yourself and to your employees to see if there is some way to renegotiate the debt on your commercial property. You did not cause the recession, but by looking for creative solutions to restructuring debt, you may be able to keep your business property and keep your employees employed.

The above thoughts are general observations only and not meant to be legal advice. The above remarks may not apply to your situation. Please consult an attorney for legal advice specific to your unique circumstances.

2011-07-05  »  admin