The past year has taken a financial toll on many New Yorkers and many New York business owners in particular. The global pandemic forced many businesses to cease operating as they normally would and led some businesses to close permanently. Without the usual flow of cash, the pandemic is causing many commercial properties to enter foreclosure. If you are the owner of a commercial property or a renter of commercial property and that property is now in foreclosure, we want you to know that we are here to help. At the law offices of Yuriy Moshes, P.C., our experienced New York foreclosure attorney, Gennady Litvin, knows what you are facing and he is here to help you through this difficult time. Continue reading to see how we can potentially help you stop the foreclosure process.
What Is Commercial Real Estate Foreclosure
What is commercial foreclosure? How does it differ from residential foreclosure? Just like a foreclosure on a personal home, commercial real estate foreclosure occurs when a borrower defaults (fails to make mortgage payments) on a commercial real estate loan, or the borrower may have violated the terms of the commercial mortgage agreement. Commercial foreclosures can also occur if a business fails to pay a certain tax or taxes owed on the property. When the borrower becomes behind on payments or breaches the agreement, the mortgage agreement typically allows for “acceleration” of the loan, meaning the lender can require the full loan amount to be paid or the foreclosure process can begin. At this point, the lender sends the borrower a notice of the default on the loan and typically the borrower has a short window of time to fix the problem that led to this point.
If you are a commercial borrower who has received any type of notice from your lender, you should consult with an attorney as soon as possible. Once you receive notice of a potential foreclosure or notice of default on the loan, you will need to respond to the notice from your lender in order to avoid the foreclosure process from beginning. An experienced foreclosure attorney can help you weigh your options and possibly negotiate with your lender to find a solution that works for both parties. Alternatively, if the foreclosure process has already begun on your property, an experienced foreclosure attorney can help you work with the courts and with your lender to protect your interests and potentially stop the sale of your property.
Importantly, because of the ongoing pandemic, both the United States Congress and the New York legislature have passed laws to halt some evictions and foreclosures from taking place. The numerous federal eviction moratoria have focused mainly on tenants of residential properties, but there may still be other types of assistance for commercial property owners and renters at the federal level. As for commercial property in New York, the New York State legislature is currently planning to pass a continued eviction and foreclosure moratorium that could help small business owners and some commercial renters avoid the foreclosure and/or eviction process. Our knowledgeable attorneys are here to help you see how these laws could potentially save you from entering the commercial foreclosure process.
When A Commercial Property You Are Renting Goes Into Foreclosure
What are a commercial tenant’s rights in event of foreclosure? Typically, the foreclosure process will look very different for those renting commercial spaces that are facing foreclosure compared to those who own a commercial property undergoing foreclosure. For commercial property renters, the bank should notify all tenants of the commercial property about the foreclosure proceedings. After receiving notice of the foreclosure proceedings, it is important to continue making rent payments even while the foreclosure is happening. If the foreclosure process stops, then remaining current on your payments will help ensure that you are able to uphold your lease and stay in the space. Similarly, remaining current on payments may help you negotiate with the bank or the future owner of the property and sign a new lease to stay on the property.
If the foreclosure goes through, what happens to the commercial lease after foreclosure? What happens to tenants after a commercial property is up for foreclosure typically will fall under one of the following scenarios:
- The new owner may evict the tenant
- The new owner and the tenant can create a new lease agreement
- The new owner may rent the space to another party.
Regardless of whether the foreclosure on the commercial space has just begun, or a foreclosure sale is about to happen, our attorneys can help you protect your interests as a commercial tenant. We will help you consider all of the possible options that may be right for you and help you determine the best path forward for you and your business.
What The Commercial Real Estate Foreclosure Process Is Like
What is the process of foreclosure on commercial property? Just like with residential foreclosure, there are two types of commercial foreclosures: judicial and non-judicial. In New York, the judicial foreclosure process will almost always be the type of foreclosure process that occurs.
Non-judicial Process
Non-judicial foreclosure refers to a foreclosure process in which the lender is able to file a lawsuit based on the terms and conditions of the original loan document. With non-judicial foreclosure, the terms of the mortgage agreement include a “power of sale” clause that allows the seller to sell the property when the borrower goes into default or breaches another term in the mortgage agreement. Even with this type of foreclosure, a lender in New York would need approval from courts to actually execute the sale of the property. This type of foreclosure is rarely used in New York.
Judicial Process
With a judicial foreclosure, the lender will file a complaint in court that explains why the foreclosure is appropriate. The lender will simultaneously file a summons that will be sent to the borrower and request that the borrower explain why the default or breach of contract occurred and give the borrower time to remedy the situation. The borrower then files a response to the complaint, explaining why foreclosure is or is not appropriate. Essentially, in the answer, the borrower tells his or her side of the story. From there, the lender and borrower will have a settlement conference and attempt to come to an agreement about how to handle the default. If the settlement conference does not work, there will be a trial and a final judgment on whether foreclosure is appropriate. After the judgment, if the lender succeeds in showing that foreclosure is appropriate, there will be a foreclosure judgment and people/organizations will be allowed to make bids on the property and buy the property.
Can I Execute Right Of Redemption?
A right of redemption allows borrowers to pay the full amount owed to the lender (including any fees, interest, or other amounts the borrower may owe to the lender) to save the property from being sold in a foreclosure auction. New York law allows for borrowers to exercise the right of redemption up until the foreclosure sale is completely finalized. The borrower will lose the right of redemption once the sale is final. As experienced foreclosure attorneys, we can help you consider paths that may help you exercise the right of redemption or other solutions (like those listed below).
What To Expect During A Foreclosure Sale
The purpose of a foreclosure sale is to pay off the debt the borrower owes the lender, at least as much as possible. So, properties in foreclosure sales are typically sold to the highest bidder. New York law stipulates that the foreclosure sale should take place within 90 days of the court judgement of foreclosure. If the property sells for less than the amount owed on the loan, the lender can seek a deficiency judgement against the borrower (the company or individual in whose name the loan was taken out) and try to collect the remaining amount owed on the loan in later actions. Alternatively, if the foreclosure sale price is higher than the amount owed on the loan, the surplus money goes back to the court and other parties with an interest in the money can attempt to collect any debts they have against the property. What is the average cost of foreclosure? The average cost of going through the foreclosure process varies greatly depending on the home and the facts surrounding the foreclosure of the home. The same is true for the sale price on a foreclosed home.
How To Stop Foreclosure On Commercial Property
Even if court related foreclosure proceedings against your property have begun, there may be ways to stop the foreclosure of the property from happening. The examples below demonstrate some ways that our attorneys could help you avoid foreclosure:
Put Together A Forbearance Plan With The Lender
A mortgage forbearance plan is an agreement that the borrower and lender work together to create as an alternative to foreclosure. The forbearance plan helps the borrower reduce the payment amount owed to the lender during a set period of time so that the borrower can catch up on payments or have time to find new sources of funding to pay back the loan. During the forbearance period, typically the lender also will agree not to begin the foreclosure process. With our experienced foreclosure legal team, we can help you negotiate potential payment plans with your lender to help you avoid the judicial foreclosure process and save your property. Forbearance plans can be an excellent option for some borrowers facing foreclosure.
Ask The Lender To Modify The Existing Mortgage
Similar to the forbearance plan, loan modification refers to when a borrower comes to an agreement with the lender on a reduced payment amount so that the payment amount better fits the borrower’s budget. Sometimes lenders will agree to alter certain terms of the mortgage agreement, like the interest rate, during the loan modification process, too. Our attorneys are experienced with negotiating new payment plans and mortgage agreements with lenders. Our team may be able to help you reach a balance on your payment options with your lender if you are facing foreclosure.
Announce Bankruptcy
Filing for chapter 11 bankruptcy can help commercial property owners stop the foreclosure process and negotiate debt with lenders. It is not a good idea to file for bankruptcy for the sole purpose of halting foreclosure proceedings. However, if renegotiating debts and rearranging assets could help you maintain your commercial property, filing for bankruptcy can automatically halt foreclosure proceedings. During Chapter 11 bankruptcy, the business typically can continue to operate and the debtor who owns the business can continue to manage the business. Chapter 11 is available to individuals, corporations, LLCs, and other business entities as well.
The entire purpose of Chapter 11 bankruptcy is to allow debtors to reorganize operations/funds in a way that allows debtors to pay back creditors. During the Chapter 11 proceedings, the lenders usually are barred from any debt collection actions. Our attorneys know the best ways to file for bankruptcy and help your business reorganize in a way that can save your property from foreclosure. If you think filing for bankruptcy may be a good option for you and your business, you should contact us today.
Deed In Lieu Of Foreclosure
A deed in lieu of foreclosure is a deed that transfers the title from the borrower who currently has title of the house to the lender. When the deed transfers the title to the lender, the lender forgives the debt the borrower owes on the property loan. While this may be ideal for some businesses, this option does mean that the property no longer belongs to you, the borrower. For company’s that are liquidating, a deed in lieu of foreclosure can be an excellent solution for avoiding the expense and lost time involved in the foreclosure process. This is another option that our experienced attorneys can walk you through if foreclosure is something your business may be facing.
Consider Short Sale
A short sale refers to when the property is sold for less than the amount owed. A lender may agree to this type of sale in order to avoid the expense and hassle of the foreclosure process. A short sale is also a way for the borrower to avoid the expenses and headaches involved in the foreclosure process.
FAQ section (answer for these questions)
To foreclose on a commercial loan, the lender must show that the borrower on the loan has defaulted (failed to pay the loan payments) or breached the loan agreement. In New York, the lender must show a court that the borrower has failed to pay or is in breach before officially selling the home in a foreclosure process. Taking the foreclosure process into court allows the borrower to have an opportunity to be heard.
As with other sales of homes, realtors can earn a commission for working on a foreclosure sale.
Typically, banks do not cover the closing costs in a foreclosure sale, even though the bank technically is the seller in the foreclosure sale. Buyers purchasing a home in a foreclosure sale may receive reduced closing costs, or avoid closing costs entirely depending on the circumstances involved with the sale and the foreclosure.
Often, the foreclosure sale will terminate the rights of a commercial tenant. Whether the commercial lease is terminated can vary depending on the timing of when the lease was signed and what the terms of the lease are. If the lease was signed prior to the mortgage, the lease may be considered to have rights that are “senior” to the mortgage and could still be valid after the sale. However, even if the lease is older than the mortgage, the terms of the lease may stipulate that the lease is subordinate to all mortgages, which means that the foreclosure would terminate the lease. One other alternative involves an agreement between the tenant and the lender called an SNDA (short for “Subordination, Non-Disturbance and Attornment Agreement). The SNDA essentially says that the lender will not disturb the lease agreement if the mortgage goes into foreclosure. With an SNDA, the lender takes on the lease agreement after the foreclosure process.
Stop Commercial Foreclosure By Contacting A Lawyer
Finding out that your commercial property may be in the foreclosure process can be scary and overwhelming. Do not lose hope. There are likely solutions to your problems and all is not lost. We are here to help you. Let us battle for you and your property rights and help you potentially stop the foreclosure process before it is too late. Our experienced, talented attorneys are ready to assist you. We can help you by:
- Reviewing your loan information and the status of your payments
- Showing you the options you may have for avoiding foreclosure
- Negotiating with lenders and creditors to help ease your burdens
- Restructuring business plans and assets to fit your current needs
- And understanding the laws that may protect you and your business during the foreclosure process.
Contact the Law Offices of Yuriy Moshes, P.C today. at (888) 445-0234 for a free consultation. Or, submit a free consultation form so that we can contact you. We can help you determine the right path forward for you and your business.