Commercial Delinquencies on the Rise in Sacramento

March 29, 2012

According to a recent article in the Sacramento Business Journal, commercial mortgage delinquencies are up from a year ago. Trepp, LLC, a New York-based analytics and business consulting firm that tracks commercial mortgage-backed securities debt, reports that 16.6 percent of the commercial mortgage loans in the Sacramento area are currently delinquent as of February. That figure climbed from 14.2 percent a year ago. According to Trepp, more than 400 properties in the Sacramento metropolitan area have commercial mortgage-backed securities debt, and 42 of them are currently delinquent in their mortgage payments.

The report reflects the realities of the Sacramento real estate market, where many businesses are failing to make payments on their commercial mortgages. Almost every Sacramento commercial real estate lawyer is seeing an increase in distressed properties and higher rates of short sales for those properties.

There are options for those facing these issues in our area. A business and real estate attorney in Sacramento can help alleviate some of the problems with the debt crunch. Each possible solution has its own benefits and drawbacks, and this is by no means an exhaustive list.

One option is to negotiate a modification to the existing mortgage. Businesses who are delinquent on their current payments may request that the mortgage term be extended to a greater period of years. This strategy lessens the monthly payment to a more manageable sum and might allow a business to start taking a bite out of the delinquent debt they have accumulated.

The drawback to this strategy is that the mortgage will cost the business more money in the long run, as interest will accrue over a longer period of time. You must be comfortable with paying more in the long-run to alleviate your current financial hardship. It may also be important to consider other possible effects of these modifications, including potential credit ramifications.

Another option is to maintain your current mortgage payments as best as you can and hire a Sacramento debt settlement firm to negotiate a lump sum settlement of your outstanding business mortgage debt. Your creditors may be willing to accept a lump sum payment totaling less than your current delinquent amount. A debt settlement firm would help you make that lower lump sum payment in order to discharge your total debt. Be aware that debt settlement can have an adverse effect on your credit. After all, the creditor may decide to accept an amount lower than what you really owe. This can sometimes be a red flag to future creditors and may impact future interest rates. The reason your current creditors may be motivated to take a lump sum settlement in an amount lower than your current debt is that they would rather take the lesser amount than run the risk of your business filing for bankruptcy. A lump sum settlement, though less than the total sum, provides instant gratification to the creditor, whereas the creditor would have to wait for a business’s assets to be liquidated via bankruptcy. Each debt situation is as unique as its eventual solution. If you are delinquent in your commercial mortgage or are a commercial landlord with delinquent tenents, you should consider consulting an Sacramento commercial real estate attorney to explore these and other possible solutions.