Foreclosure: A Community Bank Perspective

Two weeks ago I attended a meeting headlined by management of local community banks. They spoke about their perspective of commercial property foreclosure. While not all of you own commercial property, the information can be readily applied to residential property, too. Keep in mind that all the following information concerns local institutions, like Ameris Bank, The Savannah Bank, Queensborough, etc… and not larger companies like Wells Fargo or Suntrust.

When someone goes into default on their commercial (or residential) property, local Savannah banks know they are dealing primarily with distressed people not distressed assets. Foreclosure is the last thing a bank wants. So at the first sign of trouble, talk to the bank and avoid surprises. The lien holder is immediately notified when property taxes or insurance premiums are unpaid or late. If you are in trouble, the bank already knows before you bring it to their attention. Pretending like nothing is wrong or avoiding a conversation with the lender about these missed payments makes lenders nervous. It looks like you don’t know about the problem, don’t care or both.

If you are given a notice of default it is not the end of the world; don’t take it personally. Respond quickly and avoid an adversarial stance. Also be open to communication and don’t assume it is too late to find a solution. A notice of default is what it is- it isn’t a moral judgment or personal condemnation.

If you have a “game plan” (a way to get back on track), banks can justify negotiating any part of your loan. A game plan is not immediately asking that the bank take a write down or take back the property. A game plan helps the lender make fact-based decisions about what they should do. Give them information about the current status of the property, tenants, recent comparable sales or rental data. If the property is for sale, provide data on traffic, showings, feedback, etc…

The most important thing is to make sure your plan shows a way the bank loses less than taking the property back. If the result of your game plan is that the bank takes a loss, that doesn’t mean your plan is awful. The bank may have already figured a potential loss into the equation when they gave you a loan in the first place.

But what if the bank has sued you? This means you’ve either ignored notices of default and/or they think you have the assets with which to pay your loan. Try to get back to the negotiating table. Small town lenders want to work with you. The last thing they want is to foreclose on your property. Because people on both sides of a negotiating table are stressed or distressed all parties have common goals- resolving the problems and doing what’s best.

Nothing written about herein constitutes legal advice!