A commercial loan modification modifies a commercial loan. Commercial loans are given to property owners of shopping malls, industrial properties, apartment buildings, office buildings and other commercial buildings. A residential modification modifies a residential loan. Residential loans are given to homeowners or investors of single-family homes, 1-4 units, condos and townhouses. The purpose of a modification is to lower the borrower’s monthly mortgage payments so that they can afford them if they are experiencing a financial hardship. A modification takes approximately 30-90 days to get approved. If you are obtaining a commercial loan modification or a residential loan modification, it is recommended that you consult with an attorney to assist you with the process.
Factors Lenders Consider in Approving Your Modification
In a commercial modification, the lender wants to see you that your business is financially responsible so you can make your payments. Lenders require more financial information when deciding to approve a commercial modification. They want to see your rent rolls, an updated income and expense statement and information regarding your tenants, especially your larger tenants. Commercial lenders consider the following factors in determining whether or not they will approve your modification:
- Net Operating Income
- Vacancy factors
- Borrowing Strength
In a residential modification, the lender wants to make sure you can afford your new monthly mortgage payment and that your payment does not exceed 31% of your gross monthly income. They want to look at your W-2’s or 1099’s, paycheck stubs for your last two pay periods, your last two years income tax returns, your bank statements and a financial statement. Residential lenders consider the following factors in determining whether or not they will approve your modification:
- Reasons for your financial hardship. Typical reasons include loss of job, reduction in wages, divorce, disability or death in the family
- Whether or not you have sufficient income to make your monthly payments
- Whether your hardship is temporary
- How much you can afford to pay
While there are government modification assistance programs for residential owner occupied owners, there are no government programs to assist commercial owners with obtaining a modification. Commercial owners must rely on their lenders’ modification programs.
Similarities
Both commercial lenders and residential lenders will consider modifying your loan by reducing your interest rate, extending your loan term and giving you a repayment plan to allow you to catch up on your default amounts. Some lenders will also forgive the default amount and/or reduce your principle, while others will add the default amount to the back end of the mortgage. The goal of any modification is to help you reduce your monthly mortgage payment to an affordable one so you can keep your property and avoid foreclosure.
Attorney Assistance
Loan modifications are complicated, and lenders are difficult to deal with. A modification attorney is trained to negotiate modifications and knows how to handle your lender’s objections. You have a higher percentage rate of getting your modification approved when you use an attorney to help you negotiate with your lender.
