A Chapter 11 bankruptcy may buy some time for commercial property owners facing a loan foreclosure, but it may not be the best option for those who are hoping to hang on to their property.
Why not? Chapter 11 was designed to help businesses continue to operate but not necessarily to protect the interests of the borrower. A bankruptcy affords little protection for a property held as a single asset in a special purpose entity. Also, continual attorney and advisory fees during a bankruptcy can impose an additional financial burden that may outweigh any benefit from the reorganization plan.
Best option is try to do all that you can to arrive at a workout option with your lender. Remember that there needs to be some justifiable reasons for the lender to consider giving concessions.
Try working with the lender in second place to reach an agreement with the first lien holder. This strategy is very useful when the property's value has fallen below the amount of the first lien and a workout provides a better option for the secondary lender to be repaid.
Most lenders don't want to foreclose. A workout that lets owners and lenders ride out the downturn is often the best option for all parties.
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Monday, October 26, 2009
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