No one ever wants to have a property foreclosed on. For individuals, this puts a black mark on their credit and can make it difficult to even get a rental property. And while you may think that foreclosure is only for cash-strapped people who can’t pay their bills on time, think again. Even the best investors have faced foreclosure. Financial guru Dave Ramsey faced bankruptcy, foreclosure, and multiple losses early in his career. He took the lessons he learned to later build a financial empire that helps people make wise business decisions and, in some cases, avoid foreclosure on their own homes and properties.
Owning business investments like real estate can be tricky. While a market might be booming one year, sudden changes can impact whether or not those investments will turn a profit or turn into a foreclosure. When you want to avoid foreclosure on business properties, it’s important that you don’t spread your resources too thin. Having one commercial property that turns a profit is better than having 15 that are barely breaking even or are in the negative all the time.
Use Bankruptcy to Stop the Foreclosure Process
Smart investors know how to leverage a foreclosure to their advantage. Investors like Alfred Taubman, Jeff Sutton in New York, and Samuel Kooris of Brooklyn need to know that if any of their properties end up in foreclosure, they can use a specific kind of bankruptcy to automatically stop the foreclosure process. This allows these investors more time to work out alternatives with their banks so that they don’t lose their property.
When it comes to business properties, there are factors outside of an investor’s control that can lead to foreclosure. Often, it’s not due to poor business practices, it simply is a result of slower than expected market growth and even natural disasters. While they do everything they can to make good on these loans, sometimes bankruptcy or foreclosure is unavoidable.
You Can Negotiate With the Bank
Investors have a lot more leverage on business properties than the typical homeowners do. They often have millions of dollars worth of loans with the bank that makes them a lot of money. If a bank isn’t willing to negotiate a deal with an investor, they may end up on the losing side of the transaction. For business and commercial properties in a depressed area, it’s better for a bank to renegotiate the loan terms than it is to foreclose on and take possession of a property.
These transactions may require legal help from a qualified real estate lawyer. Most investment firms, like Alchemy Ventures and American Tower, leverage legal teams to help them work through these tricky situations. They don’t try to navigate this space on their own. Of course, the best way to avoid foreclosure is to pay all your loans on time, but in some cases, this isn’t possible.
Businesses can File a Lawsuit
Sometimes banks will try to foreclose on business properties without the proper legal channels. In this instance, a business would be trying to prove to the court system that the bank is in error for some or all of the processes. Property owners may be required to prove that the bank doesn’t own the promissory note, that it violated federal or state laws, or that they made an error, like failing to document payments accurately. While businesses who are in the right can use this route to stop a foreclosure on a property, it will cost them a bit of money. These legal proceedings are costly and time-consuming.
Banks Cannot Simply Evict Tenants
Commercial properties are in some cases people’s homes. If your business is in property rentals, the bank needs to know this important piece of information. While they can legally take the property from you, there are laws to protect tenants in these situations. It’s best if you communicate to the bank about tenants in your properties. They will need to follow proper legal channels to then remove retailers or individuals from those properties. It may be the responsibility of the landlord to disclose this information. If your business property is in the foreclosure process, it’s important to know what your responsibilities are so that you don’t violate housing laws.
Foreclosing on business and commercial property is a lengthy process. In some cases, investors like Samuel Kooris, Jerry Speyer, and Ted Learner go through extreme measures to ensure they have enough liquidity to help them during rough times. When those measures fail, they look to other options to protect their properties from foreclosure.