Current Economic Situation Complicates Lending and Foreclosures
The global spread of COVID-19 has caused significant uncertainty in the commercial lending markets.
Although the long-term impact of the pandemic has yet to be seen, there are substantial concerns and questions from both borrowers and lenders that need addressing.
First, the Federal Reserve and the Coronavirus Aid, Relief, and Economic Security (CARES) Act took necessary actions to keep liquidity in the capital markets. However, many lenders still find themselves in challenging situations regarding their existing loans and these challenges are likely to increase. Should they exercise their default rights now or later? Would a forbearance agreement give time to find a solution or otherwise clarify the path forward? These difficult decisions make lenders hesitant to focus on new commercial lending, especially with unfamiliar clients or existing clients with limited resources and uncertain economic futures.
Borrowers whose businesses are negatively affected by the pandemic and are obligated on a commercial loan, have several options to consider. It is imperative that all options are discussed at length with counsel, and clear, honest communication with the lender is prioritized.
Second, real property foreclosures are increasing in 2020. There are several additional government requirements on federally insured loans in the current environment as well as the customary technical requirements and process changes that occur over time.
Borrowers should take a proactive stance and work with their counsel to consider all options before the foreclosure process begins. Would a loan modification be the answer? Many lenders are willing to work with their borrowers to lessen the adverse impact on both parties. If a borrower cannot successfully arrange an alternative to foreclosure, there are other defenses available. Did the lender follow the state mandated foreclosure procedures? Were the appropriate notices filed in the process?
The nuances are so critical that our attorneys worked with several other real estate attorney experts to help draft the Foreclosure chapter of the Texas Bar Real Estate Forms Manual. Today, these forms are widely used by legal practitioners in Texas to create all notices pertaining to foreclosure, create affidavits and conduct foreclosure sales throughout the state of Texas.
The takeaway here is that in these unprecedented times, we would encourage any commercial lender or borrower facing challenging situations to seek out a seasoned real estate attorney who has a full understanding of federal requirements for commercial lending and/or deep expertise in the foreclosure process in Texas to protect the interests of all involved.