A Checklist For Lenders (and Borrowers) Preparing For CRE Loan Default - Law360 article

July 12, 2024

Reports have looked to the estimated $4.7 trillion outstanding in commercial real estate loans, spread over a wide range of property types, capital sources, metropolitan areas, borrower types and other characteristics. 2024 maturities, unless extended, are $929 billion, approximately 20% of the $4.7 trillion outstanding.

However, this scenario may not continue, whether due to increasing pressures on financial institutions to reduce their commercial real estate exposures, concerns of borrowers about liquidity, valuations and increasing operating expenses, or other factors. As a result, proactive resolutions of distressed loans, including loan workouts, foreclosures or other responses may increase.

The Checklist is written primarily to advise lenders on how to prepare to act in response to default by a borrower on a loan secured by commercial real estate. It is therefore also useful to borrowers to understand what lenders will be reviewing. The Checklist reflects my experience in representing lenders in loan default transactions during two real estate down cycles (1995 and 2008), presently, and at other times.

The Checklist addresses due diligence as to the loan documents, the real property collateral, personal property collateral and the parties involved. It also addresses a lender’s review of its potential lender liability risk and the action necessary to declare a default. Reference is made to sources available in order to understand regulatory requirements and restrictions.