Brace for More CMBS Loan Defaults

We have written many articles on this blog highlighting the myriad of problems facing borrowers with projects financed by Commercial Mortgage Backed Securities (CMBS) loans. Most of these loans were written in 2006 and 2007 and carried a 10 year loan term. That means they are coming due now or in the next 12 months. With credit markets growing more conservative, the timing for these maturing CMBS loans couldn’t worse.

Last week rating agency S&P issued a shocking statistic. Some $92 billion of these commercial loans are coming due in 2017 and S&P thinks $12 billion could default!

We often speak to borrowers who believe that getting an extension or renewing the loan will be easy. This is especially true if the loan isn’t in default and the borrower has plenty of equity in the project. These folks are in for a very rude awakening.

When a loan matures, and is not paid in full, the loan is in technical default. These are called maturity defaults. The default status triggers a cascading number of problems including default interest, the imposition of a special servicer, receivers, lock boxes and even sweeping of all reserve accounts.

Whatever equity you have could be quickly wiped out. Ironically, if you have equity, the special servicer is often less likely to work with you. Special servicers only get paid when the loan is in trouble. There is an economic incentive to keep borrowers on the hook for all these fees and charges. In essence, borrowers get punished for being good borrowers and having equity.

The time to avoid a maturity default is now. It can take months to do a roll up, arrange for a capital infusion or negotiate a new loan.

Will 13% of CMBS loans default in 2017? We hope not but from what we see, many borrowers are woefully unprepared.

MahanyLaw and Judge, Lang & Katers – America’s Lender Liability Lawyers

MahanyLaw and Judge, Lang & Katers are two independent boutique law firms with national practices. We join forces on lender liability cases against banks and to help borrowers with CMBS loan refinancing or workouts.

There are very few lawyers that understand the highly complex rules involved in large commercial transactions and securitized loans. Most of the lawyers that do this work are employed by the banks and not the borrowers. Not us.

Our reach is national, but our rates and values are based in the Midwest. Because we regularly handle these matters, our business model never involves educating new associates (or ourselves) on your dime.

Worried about a looming CMBS loan refinancing? Recently receive a default notice? Call us immediately. For more information, contact attorney Chris Katers at [hidden email] or by telephone at (414) 777-0778. You can also visit our CMBS Loan Modification and Refinance page or try the search engine on our text searchable blog.

MahanyLaw and Judge, Lang & Katers – America’s Lender Liability Lawyers – We Know CMBS!