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Some retail businesses such as The Cheesecake Company are refusing to pay rent while the co-CEO of the American Dream is appealing to the Federal government for more financial support as retail tenants in shopping malls are unable to make payments [1].
The Coronavirus Aid Relief and Economic Security (CARES Act)
On March 27, Donald Trump signed the CARES act into law after the approval of a $2.2 trillion stimulus package [2].
The CARES (Coronavirus Aid Relief and Economic Security) act introduces an eviction moratorium on lenders to help prevent mass homelessness and keep the economy moving.
The CARES act entitles borrowers who can show they are experiencing hardship as a result of the coronavirus to a 90-day reprieve from any legal action. However, those who are current on their mortgage loans will not be eligible.
President Trump announced that an economic snapback is possible [3] although some economists would beg to differ. But when the market opens again, mortgage servicers are still obligated to keep a flow of cash going to the banks and they’re going to restart foreclosure proceedings once forbearance periods expire.
Mortgage servicers will be overwhelmed by inquiries from businesses needing help to get with a loan forbearance and modifications. Now is the ideal time to use some legal help with cutting through all that red tape in a timely fashion.
What Is Loan Forbearance?
Loan forbearance is where the lender agrees to suspend or reduce repayments for a specified time. The payments missed don’t get canceled, they simply get tacked onto the end of the loan. Any penalties are waived and missed payments aren’t reported to credit agencies.
Loan forbearance sounds like the perfect temporary solution until the economy gets back into gear, but it’s vital you understand how you will be treated once this period ends.
Many who applied for forbearance after the 2008 financial crash received a nasty shock at the end of the forbearance period. Many people were shocked when they were suddenly hit with a demand for a balloon payment for those skipped payments. Instead of tacking the missed payments to the end of the mortgage, borrowers were ordered to pay up immediately leading to the foreclosure of their real estate.
For the duration of loan forbearance, a loan servicer (on behalf of the lender) cannot pursue a foreclosure. In exchange, however, the borrower must resume making payments at the end of the forbearance period.
The issue here is that the full amount owed from the 90-day forbearance period becomes payable at the end. It’s unlikely that those with commercial mortgages will have the lump sum available at this time as they are not able to work during the pandemic.
With the CARES act, loan forbearance eligibility depends on demonstrating financial hardship due to the pandemic. This includes being behind on mortgage payments. If a borrower is current, they will not be eligible and so they are still faced with the prospect of foreclosure.
What are the Loan Modifications?
With a loan modification, the terms of your mortgage are completely rewritten. The lender typically reduces the monthly payment amounts and brings the loan up to date by adding any overdue amounts to the balance of your mortgage.
A loan modification is a more permanent solution, whereas forbearance provides short term relief. To qualify for a loan modification, you will need to convince your lender that you can meet the repayment terms.
So which is best, loan modification or loan forbearance?
This will depend on your individual situation. To decide it’s a good idea to get legal advice. Trying to save on costs by handling this matter yourself could end up costing more in the long run.
Why Use A Loan Modification Lawyer?
The devastating impact of the pandemic on the economy is putting pressure on mortgage servicers who must still maintain a flow of cash to the banks. Sadly, many commercial real estate tenants are unable to keep up with their monthly rent leaving those who own bars, restaurants, malls, warehouses, and cafes in a precarious situation.
Here are some reasons why you should consider using a lawyer specializing in loan modification:
A Lawyer Knows How To Navigate the Legal System
Mortgage lenders are not obliged to grant a loan modification. If you decide to go for a loan mod, your lender will ask you detailed questions about your financial background and the property.
You may also be asked to send regular daily or weekly updates on your situation overtime before the loan mod is granted. Lenders will want to see projections of how your finances will play out in response to the pandemic.
You will need to document your finances to be presented in a manner that convinces them to modify your loan. A good lawyer can help fight your case and avoid foreclosure.
A Lawyer Can Help Speed Up The Process
Lenders are cautious about who they give loan modifications to and will take their time to make their decision. Having to handle high volumes of loan modification and forbearance requests will also cause delays. Using a lawyer to handle matters on your behalf will speed up the process as they are legally obliged to respond to an attorney within a certain timeframe.
A Lawyer Can Help You Avoid Costly Mistakes
Using an experienced loan modification lawyer can save you time and thousands of dollars over trying to go it alone. Loan modification lawyers are well-versed in financial law and will be able to formulate a strategy tailored to your situation. You’ll also have a better chance of a more competitive rate as lawyers often have relationships with lenders.
Mortgage servicers are under increasing pressure from both borrowers and lenders. Using a lawyer will keep them accountable. If they make any mistakes during the process, you may have a compelling case to have any foreclosure proceedings canceled.
Take Action Immediately
If you act now and seek legal advice on your best course of action, you should have enough time to get your affairs in order before the lenders start foreclosing on commercial mortgages. Remember, since there will be a high volume of people in a similar situation, using a knowledgeable and experienced foreclosure attorney will offer you a distinct advantage.