Group representation can be effective approach to curing commercial mortgage defaults

As property owners and businesses struggle with the unfolding economic impact of the Covid-19 pandemic, it’s likely that a large majority of borrowers with commercial mortgages in the country will default. Many borrowers will not be able to pay their mortgages because their tenants will not be able to pay their rent.

The hardest hit areas most likely will be retail and hospitality, but the situation will apply across the board with all sectors. Although we expect and hope that our economy bounces back quickly, the financial impact on borrowers will reverberate throughout the economy for two to three years, even if we have a V-shaped recovery.

In this current economy, lenders and borrowers are going to have to work together to recreate performing properties and loans. The country will be able to pull out of this crisis, but it requires borrowers and lenders to work together, the like of which we have never seen.

Borrowers don’t have to go it alone

Multiple borrowers related to a single lender or servicer’s portfolio can consolidate representation for legal and real estate counsel. I learned through my workout representation during the last major economic downturn and recovery that lenders, servicers and borrowers can all benefit from group representation in working out mortgage defaults.

Groups of borrowers can benefit from the efficiency of having one point of contact and group solutions with lenders, which will create the most organized and cost-effective method to negotiate forbearance agreements. Of course, there will always be specific issues for certain borrowers, but group representation can be very efficient for resolving many issues.

For a particular lender, a group solution may be very effective because many of their loan documents will be similar. If a lender can deal with one lawyer for multiple borrowers, it will greatly reduce their time and effort in coordinating borrowers. Working with one representative for a consolidated group reduces the volume of communications and negotiations involved in dealing with separate counsel for every borrower.

How do borrowers consolidate?

Borrowers can coordinate as a group by contacting a lawyer like me, who is creating group representations with various lenders. As one of the lawyers in Dunn Carney’s commercial real estate practice who is experienced with consolidations, I am working with borrowers, lenders and brokers to help consolidate borrower defaults.

About the author:

Coni Rathbone, Partner
Business and Real Estate

Coni Rathbone has represented approximately 150 Tenant-in-Common (TIC) owner groups since the 2008 recession. With her help, many groups were able to save their troubled properties from predatory managers, lenders and others, turn them around and avoid foreclosure.