A commercial loan modification is a form of loan modification where the mortgage of the property is under the name of a business rather than an individual. A commercial loan modification is ‘modifying’ the terms of payment on all or any of the following:o Resetting the interest rate.
o Payment deferment for a particular period of time.
o Readjustment of principal amount.The motive of the commercial modification programs is to bring down the mortgage installments within an affordable range of the borrower. Commercial loan modification is a winning preposition for both the borrowing institution or business and the bank. Where on one hand the borrowing institution gets to keep the property the bank of the other hand get to recover their full loan without getting stuck with an immovable asset which is a bad debt until successfully auctioned off.In this time of economic crisis, the number of businesses which are struggling to maintain a positive cash flow is increasing. In November 2007, the department of treasury introduced new regulations under Real Estate Mortgage Investment Conduits (REMICS). These new regulations have increased the scope of REMICS and thus the list of allowable commercial loan modification has also increased.The commercial properties that can be modified are:( the list is not exhaustive)o Shopping center
o Apartment building
o Business Complex
o Warehouse
o Restaurant
o Office building
o Multi tenant building
The acceptable financial hardships are:( the list is not exhaustive)
o Loss of tenants due to bad economy
o Fall in rent rolls
o loss because of concessions made to tenants
o Reduction in revenue from sales.When applying for a modification of your loan following additional documents are required by the lending institution along with the application form:o Current Mortgage statement
o Current Income and Expense statement.
o Current rent roll records
o Rent roll records for previous two years
o Up to date personal finance statement
o Tenant profiles of the credited tenantsThe main criterion’s that the businesses are judged on are:
o Whether the business or borrowing institution is ‘viable’ or not.
o The current net operating income (NOI).
o The occupancy rate of the building.
o The present cash flow.It becomes easier for the business seeking to successfully secure a loan modification if they have credit tenants with longer term lease. The banks want a reassurance of the fact that a modification of the loan would be a better option for them too instead of foreclosing the property.