Foreclosure of Commercial Property: Effect of Re-Financing

Owners of commercial properties facing foreclosure have many of the same options available to them as homeowners in the same situation. Refinancing is one of the potential ways to stop a foreclosure in its tracks while enabling a business owner to possibly gain stronger financial footing.

How Refinancing Helps

A refinancing involves taking out a new loan that effectively pays off a previous mortgage on a commercial property. When this is successfully achieved, the former loan is settled and a new company takes over financing the commercial property.

Refinancing can stop a foreclosure by settling the loan that is in default. This will effectively cancel the lawsuit for foreclosure by settling all debt to the original lender. Borrowers may face additional costs in settling with their original lender, such as attorney’s fees, but the outcome can be a new loan and a clean slate to work with.

Avenues to Refinance

There are several different options owners of commercial properties can explore. It may not always be easy for a business that is struggling to obtain a refinancing deal, but it is not out of the question. Some possible avenues to explore for refinancing include:

  • Working out a new loan with the original lender, i.e., a loan modification.
  • Seeking out a commercial lender that will work with businesses facing foreclosure.
  • Finding private investors to fund or back a refinancing deal.
  • Filing Chapter 11 bankruptcy, which essentially enables a business to renegotiate its debts for repayment. This action will stall foreclosure proceedings. If a repayment plan is worked out during Chapter 11 proceedings, a foreclosure can be halted entirely due to the repayment plan.

About Bankruptcy

When a Chapter 11 bankruptcy is filed, a business has an opportunity to create a debt-management plan to settle debts within a set period of time. This can effectively save commercial properties from final foreclosure proceedings and may give a company an opportunity to restructure other debts based on the new plan. The timeframe for repayment is typically five years.

Seeking Legal Advice

Commercial foreclosure can be especially devastating to struggling businesses. Seeking sound legal counsel is an essential step to help protect a business and its assets. A skilled lawyer will be able to help owners of commercial properties thoroughly explore their options and select the best possible path for their circumstance. A lawyer will also be able to provide sound advice on a potential refinance to make sure a company’s best interests are represented with a new lender or investors.