Learn About Commercial Property Loans
Posted on July 21, 2010
Filed Under Debt Relief, Loans, Mortgage, Personal Finance, Refinancing Solutions | Leave a Comment
Commercial property loans that make use of real estate as collateral are a little different from residential real estate loans.
Unlike residential property loans, a building will be used in order to secure repayment to the lender rather than a residence. A business will usually take on a commercial property loan, not an individual borrower.
The borrower may be a partnership, incorporated business, or limited company, so assessment of the creditworthiness of the business can be more complicated than is the case with residential mortgages.
In some cases, commercial property loans are nonrecourse. What this means is that in the event of default in repayment, the creditor may only seize the collateral, and has no further claim against the borrower for any other assets. The reason for this is twofold: there are sometimes laws that significantly prevent the creditor from going after the borrower for any deficiency, and mortgages structured for sale as bonds will tend to give a higher priority to constantly receiving some sort of income and therefore require a clause that allows the lender to take the property immediately, regardless of bankruptcy proceedings that the borrower might be going through.
Frequently, the commercial property loan is supplemented by an obligation of the borrower or a guarantee from the owner(s), which causes the debt to be payable in full even in the event that foreclosure on the mortgaged collateral does not satisfy the outstanding balance.
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