Help borrowers encourage lenders to respond to requests for loan extensions or modifications

Brigitte G. Kimichik, partner, Andrews Kurth LLP

As published in Scotsman Guide's Commercial Edition, October 2009.

In the past few months, commercial lenders and servicers have seen increased defaults for their on-book loans and commercial mortgage-backed securities (CMBSs).

Many borrowers, however, are becoming proactive. Anticipating upcoming maturity dates or imminent cash-flow distress, they are calling their lenders to try to negotiate short-term loan extensions or modifications that can provide debt-service relief until the market recovers.

But their calls are not always returned -- and some frustrated borrowers are stopping debt-service payments to force a response.

Borrowers often are not receiving immediate attention because lenders and servicers are increasingly cautious. They're revisiting their existing parameters and requirements for approving extensions and loan modifications for a more conservative approach.

There are ways, however, that commercial mortgage borrowers can help motivate their lender or servicer to respond to their requests in distressed-asset situations. Mortgage brokers who also understand these methods can help their clients through what could be a lengthy, arduous process.

Consider the following 12 tips for expediting a response from the lender or servicer when clients are seeking a loan extension or modification:

1. Identify the proper contact. Lenders often designate a servicer to handle daily loan management. This is typical for CMBS-originated loans, in particular. Once a loan is in default -- typically, after one to three months -- it is transferred to a special servicer that can consider an extension or a modification or pursue remedial action, which could include foreclosure. Knowing who to call from the start will save time and minimize borrower frustration.

2. Understand the nature of the existing or imminent default. Providing a "wish list" of loan mods will not get your client an audience with the lender or its servicer. The loan must be in default or in imminent default, and the nature of the default clearly must be because of an ascertainable market consequence. Citing the reason for the request as simply a loan's imminent maturation likely will not elicit an extension. Borrowers must prove that they have approached a reasonable number of reputable lenders and that have all refused to refinance the loan because of market uncertainty.

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