How to Avoid Commercial Foreclosure on Your Business Property

A commercial foreclosure of a business property can have an overwhelming short term and long term impact on a business owner.  In a commercial foreclosure proceeding, a lender may seek to have a receiver appointed in order to prevent the business owner from continuing to collect rents while not making mortgage payments.  Depending on the nature of the business, the inability to collect rent may virtually put the business owner out of business.

A commercial foreclosure may also represent the end of a business owner’s ability to earn a living and consequently affect his ability to pay his personal bills.  The domino affect can result in foreclosure of his home, repossession of vehicles, and collection efforts by other creditors.

What Steps to Take to Avoid a Commercial Foreclosure

Because the impact of a commercial foreclosure can be so far-reaching, any business owner who is experiencing financial difficulties must be proactive in dealing with a commercial mortgage obligation.  Following are a few steps to take:

• Negotiate with the Lender – One of the biggest mistakes a business owner can make is to ignore the problem.  If you make contact with your lender has soon as it becomes clear you will be unable to make your mortgage payments, you may be able to negotiate a compromise or modification of your loan terms.
• Reorganization – Reorganizing, consolidating, or eliminating debts may give you the cash flow you need to bring your mortgage payments current.  Bankruptcy may also be an option.  One of the biggest advantages to filing bankruptcy is the imposition of the automatic stay at the time the petition is filed.  The automatic stay prevents your creditors, including the lender holding your commercial mortgage from, pursuing collection efforts against you and against your property. 
• Sell the Property – Selling the property may also be an option.  It’s possible to sell the property and lease it back from the new owner.  If your property is worth less than what you owe, you may be able to negotiate a short sale with the lender.  A short sale is an agreement between the lender and the property owner whereby the lender agrees to accept less than what is owed on the commercial mortgage. 
• Deed in Lieu of Foreclosure – If reorganizing, negotiating new terms with the lender, and selling the property don’t work, you may be able to negotiate a deed in lieu of foreclosure.  A deed in lieu of foreclosure is a negotiated agreement between a lender and a property owner whereby the property owner transfers ownership of the property back to the lender in exchange for the lender’s promise to stop the foreclosure.

Getting Legal Help

No prudent business owner should undertake any of the steps to avoid a commercial foreclosure without the advice and assistance of an experienced commercial foreclosure attorney.  A qualified commercial foreclosure attorney will be well-versed in commercial foreclosure law and can represent a business owner in all negotiations with his lender.