Foreclosure of Commercial Property: Options to Stop It

Just like residential properties, commercial properties are subject to foreclosure by creditors. Likewise, the options for fighting a foreclosure on a commercial property mirror those of residential properties: negotiation, contesting the security agreement/mortgage, challenging the foreclosure itself, and bankruptcy.

Talking the Matter Over

It is possible, under some circumstances, that the parties involved can discuss the problem and work something out among themselves. Unfortunately, in such a situation, the creditors already have significant leverage and may not be willing to negotiate.

Contesting the Security Agreement/Mortgage

In instances when the foreclosure on a commercial property will be due to a default on a mortgage or other security agreement, a debtor may be able to save the property by challenging the underlying agreement. For example, if the interest on a commercial loan is particularly high, it may run afoul of a state’s usury laws. Moreover, some states have laws that target unfair and deceptive acts and practices that are applicable to certain business transactions.

Challenging a Foreclosure

A commercial debtor also has the option to dispute the foreclosure process. In many states, a debtor has a right of redemption, in which the debtor can stop a foreclosure on the property by paying back the arrearage (or the entire balance) in addition to all foreclosure-related costs. The right of redemption, however, can differ from state to state; in some states, it may be limited to home foreclosures.

Many states also require sufficient notification regarding a foreclosure sale, as well as a reasonable foreclosure price. An insufficient notice or inappropriate sales price can be grounds for negating a foreclosure sale, although such an option may also be limited to residential properties.

Bankruptcy as an Option

Bankruptcy is a potential option for some debtors, albeit one of last resort. In such a situation, there are two types of business-related bankruptcies. If a business has a source of regular income, then a Chapter 11 bankruptcy will allow a debtor to retain its property in order to continue generating revenue that can be used to pay off creditors. A Chapter 7 bankruptcy, on the contrary, will not save a commercial property because the premises will be considered part of the debtor’s estate, which will be sold off (just as with a foreclosure) in order to satisfy any and all commercial debts.

Consulting with a Lawyer

In the end, the options for saving commercial properties from foreclosure will depend on the facts involved and the laws in a particular jurisdiction. When faced with the possibility of foreclosure, a commercial debtor should consider gaining the consultation of an attorney. An experienced foreclosure lawyer can assist her client with the legal options that could possibly save the property.