You’re behind on your business debts. Lenders are sending scary notices to your business, and you haven’t been able to pay down your business’s mortgage payments on your office building. You may be facing foreclosure of your business property.
Standard Foreclosure Procedures and Business
The location of your business plays an ultimate role in how the foreclosure process proceeds. When going into foreclosure procedures, there are two main procedures dictated by the state:
- 1. Nonjudicial – The nonjudicial foreclosure is streamlined and will follow statutory law before the foreclosure process begins. A business will receive a letter of default in most states followed by a notice of sale date. Borrowers (you) must be allowed to bring the loan current, too.
- 2. Judicial – The judicial foreclosure must go through the court system, with the lender filing a complaint with the court. The court can decide to order a judgment, where the property is sold and the structure or land is sold to satisfy mortgage debt.
In both cases, the foreclosure process can end with the lender selling your business’s property to satisfy your mortgage debt.
Your Rights During Foreclosure
You have rights during a foreclosure, and these rights allow you to remain in possession of the property until the proceedings are over. The idea is that the business owner may use the property to accrue income and pay off their outstanding debts.
But there’s also the chance that the borrower fails to follow through with these actions, and in this case, a receive can be appointed by the courts.
A receiver is an entity that will manage a business’s property until the foreclosure is complete. The receiver, when considering an apartment complex, may collect all of the rent from the tenants and hand it over to the lender.
The business owner may have chosen to take this money and not satisfy the loan.
And if you agree to forfeit the property and allow the bank to sell, the receiver may sell the property on the lender’s behalf to satisfy the loan even before a court order is granted. This is an option when foreclosure is the only means to alleviate the debts.
Borrowers Can Avoid Foreclosure
As a borrower, just because foreclosure proceedings begin doesn’t mean that there is no hope. You have a right to negotiate with the lender and try to avoid foreclosure. A few of the steps you can take to avoid foreclosure are:
- 1. Work with a lender to modify the mortgage to a rate affordable for your business
- 2. Offer a repayment plan that will satisfy the missed payments
- 3. Legally return the property to avoid foreclosure
Borrowers aren’t always the party that is responsible for the foreclosure. The lender may have violated foreclosure procedures, or it’s possible that the was an error on the bank’s part. A few of the defenses a business can make when fighting foreclosure are:
- 1. The bank failed to follow state foreclosure procedures
- 2. Notice of foreclosure wasn’t provided as per the contract agreement
- 3. The lender made an error when handling the account
You can choose to allow the property to go through a short sale if the lender agrees. A short sale will be a quick sale where the property is sold for less than the remaining balance on the loan. The issue with a short sale is that it also can lead to a deficiency.
A deficiency is a process wherein the lender will seek a personal judgment to recoup the difference between the remaining mortgage debt and the price the property was sold for during short sale. For example, a mortgage with $300,000 remaining that sold during a short sale for $200,000 may result in a deficiency of $100,000.