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Beware: Commercial Properties are Next in Line to Be Foreclosed


At the beginning of the year, President Biden’s Administration announced an extension of forbearance and foreclosure protections for homeowners impacted by COVID-19 through June, 2021. This was followed by a proposal by the US Consumer Financial Protection Bureau to delay a wave of foreclosure proceedings by mortgage lenders against defaulters until January of 2022.


The rule, were it to take effect, applies to all federal and private mortgages on principal residences. The announcement was highly encouraging for homeowners who could not make monthly mortgage payments due to loss of income during the COVID-19 pandemic.

While relieving for residential property owners, it’s potentially bad news for commercial property owners. If banks can’t foreclose on the former, it’s likely they will have less incentive to negotiate with the latter borrowers.


In this post, we discuss how the commercial real estate market is faring in Illinois and how a real estate attorney can help.


Notable Commercial Foreclosures in Chicago


Across the country, residential properties are foreclosing at lower rates. In fact, through the first quarter of 2021, the average foreclosure timeline increased by 8%. Whether by causation or correlation, lenders are turning their attention to commercial real estate, as the Wall Street Journal predicted.


Locally, there have been notable actions against three Chicago institutions:


  • A foreclosure suit was filed against the Palmer House Hilton Hotel in 2020 for defaulting on a $333.2 million mortgage.

  • Robert Morris University and Roosevelt University recently merged and then things got very messy. Robert Morris vacated 355,000 square feet at 401 S. State, and in April of last year, the owner of the space sued them and Roosevelt University for breach of the lease and for the monthly rent payments of $1,000,000. By August, Deutsche Bank brought a commercial foreclosure lawsuit against the building owner.


Landlords Are In A Tough Spot


Commercial properties that are most vulnerable to foreclosure include hotels, shopping malls, office buildings, and restaurants.


You can argue that commercial property landlords are stuck between a rock and a hard place. How can they negotiate concessions with tenants if they can’t negotiate forbearances with their lenders?


It’s fair to say that more commercial foreclosures, short sales, and bankruptcies are on the horizon. Banks foreclosing on commercial property often have the upper hand of appointing Receivers to obtain whatever rents they can. Additionally, they don’t need to wait out the ninety-day redemption period, so the foreclosure may happen much faster than a residential one.


How A Real Estate Attorney Can Help


If your clients anticipate any cash flow difficulties, a real estate attorney can reach out to their lenders to discuss the terms and conditions of their mortgage. Commercial property foreclosures move faster than residential foreclosures but are just as likely to land a property owner in bankruptcy court to provide for a workout.


It’s worth the discussion with commercial lenders to see if they would prefer receiving mortgage payments and working toward a cure instead. As long as it’s feasible and your clients can eventually catch up on payments, their lenders may be willing to negotiate the current terms on a mortgage, which will give the owner the opportunity to negotiate with tenants.


Homeowners and tenants are benefiting from relief programs granted from the federal and state levels. Will commercial real estate owners be next?


We Can Help


With almost 40 years of experience in Illinois real estate law, Erica Minchella has a proven track record when it comes to commercial foreclosure actions and commercial real estate transactions. Schedule a consultation today.


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