When you hear anything about foreclosures on the news, or read about it in newspapers, it always refers to the private property market – houses, townhouses, condos and apartments for example. What you rarely hear mentioned is that the fact that commercial properties are suffering something of a foreclosure crisis too, leaving some states with absolutely no choice but to update their laws in relation to properties of this type, New Jersey being a perfect example of this.
The biggest problem most banks and individuals face in relation to foreclosing on a commercial property is that the entire process is very time consuming (often taking more than 12 months), but alas is a necessary evil to allow banks and other investors to recoup at least some of their losses. There are also two very different types of foreclosures when it comes to commercial properties:
Judicial – the lender has to file a lawsuit against you before foreclosing.
Non-Judicial – the lender can foreclosure on the property by simply telling you that\’s what they\’re doing.
The very first step in foreclosing on a commercial property is that you will receive a notice from the lender informing you that you\’ve defaulted on your loan payments. You\’ll be informed that failure to make your mortgage/loan payments will result in your property entering into the foreclosure process.
If you cannot make the mortgage payments on your property, for whatever reason, the next step in the foreclosure process is that your lender will file a lawsuit against you, ensuring that they have the right to foreclose on your property. You will then receive a further notification when your property has been legally foreclosed upon.
The next step the lender will take from here is to sell the property at auction, and the money earned from the sale of the property will be used to clear the mortgage on it. It\’s not unusual for the lender to actually bid on the property itself, attempting to resell it themselves later at a profit.
There is always the option for you to negotiate a modified loan which would allow you to clear your payment arrears and continue paying your mortgage at the same time. From a lender\’s point of view this is ideal because it prevents them having to spend over a year jumping through all the legal hoops required to actually foreclose on the property itself. One word of warning here is that as soon as you realize that you\’re going to default on your mortgage then that\’s the very best time to arrange a loan modification with your lender – doing it during the foreclosure process is far more difficult.
When dealing with the legal aspects of commercial property foreclosure it\’s always wise to get professional legal counsel on the entire process, regardless of whether you\’re the lender or the property owner. The sheer volume of distressed commercial properties on the market means that laws and regulations in relation to them are changing all the time, so getting professional legal advice is always wise.