What to Do When Your Commercial Lender Fails (Part II)
So your community bank failed. Bummer.
And then the FDIC took over your commercial mortgage. Double bummer.
Now, you get a letter that says some LLC has purchased your mortgage. What next?
Well, I work for that LLC. My company is the controlling member of that LLC and my job is to work something out with you, Jim Borrower, that everyone can live with.
Ok, for the purposes of this article, I will assume that your mortgage has been purchased through a structured sale with the FDIC or has been transferred/sold to a loss-share bank. We can get into the difference between the two types of new owners elsewhere, but your position really doesn’t change much either way and I think the steps you should take are the same.
So here’s what you do:
Step 1 – Find the Buyer
The first step you should take is figure out who just bought your mortgage. Assuming your loan matures before 2030, you are going to have to deal with these jokers ( . . . me . . . ) sooner or later. So you need to know who you are dealing with. The fastest way to do that is to follow the headlines.
These sales with the FDIC are all public record, so eventually the FDIC will have it on their website, but it will take a while for them to update that. So you need to follow the headlines in a Google Alert like “FDIC Commercial Loan Sale” or “Commercial Mortgage Sale by FDIC.” The point is, you want to see the article that names the equity firm or bank that now owns your loan. Otherwise you will have to wait a couple months for it to enter public record.
If you don’t see it and get a notice that says that “Jim Bob’s LLC has purchased your commercial mortgage,” you should immediately hunt down that LLC through the secretary of state’s website. We will get into the details of the Sec of State searches later, but for now let’s just assume you know your way around that database and find out ACME Inc bought your mortgage. Great! Moving on . . . .
Step 2 – Weigh Your Options
As I see it, there are only six options available to you:
- Discounted Payoff
- Full Payoff
- Guaranty Suit
- File for Bankruptcy
I will describe each of these in detail in the next article, but I want you to start thinking about your options from both sides. We are an investor looking to maximize our returns and you are looking to have as little pain as possible in owning and maintaining this property. Where those two desires meet is where we will make a deal. Otherwise, you’re just wasting my time or I’m wasting yours. So this step is important. Know your options and have an idea of what will be suitable for both parties.
Step 3 – Call the New Owner
Assuming you want to make a deal (instead of being non-cooperative or just continuing to pay your loan into oblivion), now is the time to reach out. You know who we are, you know your options, you have all your paperwork organized, and now you need to reach out to the deal maker.
This may take some additional research.
You need to use company websites, LinkedIn, and your professional network to find someone at ACME Inc. Find someone and they can point you to the decision-maker on your loan. In our case, we have thousands of loans and dozens of asset managers. So there isn’t one guy to call for your loan. It could be any one of two dozen people that work loans every day.
Get to someone and let them guide you to the right person within ACME.
Step 4 – Keep your Head and Strike a Deal
We get paid to resolve loans and find solutions. We don’t get paid to hurt you. Calm the heck down and let’s make a deal happen. Yelling at me or trying to intimidate me just pisses me off and makes me call my attorney. Trust me when I tell you that you would prefer to deal with me than my attorney. In fact, you are legally liable for any legal fees I incur trying to chase down the money that you owe us.
So approach this person as an ally helping you wade though a tough situation. In my experience, people have watched too many crime dramas where they think the only way to negotiate with someone is to shine a light in their eye, yell loudly, and imply physical pain. Doesn’t work and it’s a waste of time. Save us both some time and let’s be grown-ups and work out a deal. I have 100 other deals that need my attention and I don’t have the patience to deal with screaming idiots.
You already have all your ducks in a row and a strategy in hand, so send in your paperwork, propose a resolution (including a timeline), and let the person think it over. If you do that, you’ve done most of the hard work for the gal anyway and she will want to work it out with you. The easier you make her job the better deal you will get.
Step 5 – Follow Up and Close
You can promise and talk all you want, but if you don’t deliver then you’ll get the wrath of the new mortgage-holder who has the right to pursue you (usually). So, once you’ve worked out a deal with her, check in every couple weeks to update on status and timing and close that bad boy.
Do everything within your power to close and, if all else fails, communicate more. I totally understand when someone is refinancing one of my loans and their refinancing lender needs another 15 days to close. That’s fine. Earth is probably NOT going to explode in 15 days. Just keep me in the loop and get it done. If you drag it out for 6 months, then I’ll just call my attorney. But I am reasonably patient when borrowers keep me in the loop with legitimate hold-ups. Again, I have 100 other borrowers to attend to and don’t want to spend too much time watching every move you make. I just want to know what’s happening.
Step 5 – Move On
Closed? Great! Wipe your brow, take a deep breath, and get back into the business of making money and out of the business of spending money. In fact, make some money off of me!
I just told you that I have 100 deals I am looking to move. Why don’t I move a few in your direction? There is always a deal to be had if you want to hold the property longer than we do or are more willing to invest in improvements or whatever. Your timeline and risk-profile are different than ours, so take a look at a couple deals and let’s see if we can get a few deals done!
That’s it. Be prepared, make my life easy, and keep your cool and we can all be friends. Remember, we are here to make deals and move loans, not hurt people. The only people who get hurt are the ones who scream, lie, and try to trick us. They get what is coming to them. You don’t want to be that guy. Be easy to work with and my first phone call on a great deal I need to move may be to you . . .