Since 1971, I have heard stories about local bankers taking advantage of borrowers. As an example, a local bank makes a real estate loan, planning for non-performance. Then, the lender somehow effects non-performance resulting in a foreclosure benefiting the bank. This particular scenario is so fraught with practical & legal loopholes that it passes absolutely no “smell test”.
In forty-eight years, I am aware of three instances in which a lender retains a property that has been collateral. One, a lender takes bank stock as collateral, resulting in a bank acquisition. Another, loan security is urban land that becomes a bank drive-in teller location. Finally, a land parcel becomes a branch bank location. Perhaps there were others but the number is insignificant. In 2018, there is so much lender scrutiny that no lender has the appetite to engage in such activity.
If you are a moderate sized commercial real estate borrower, the loan originator is likely local. The best laid plans don’t always go as intended. Obstacles affecting loan performance can arise. The lender can also be confronted with problems that are consequential. Examples are loan loss reserve inadequacy and potential reversal of accrued income. This process takes months or even years. Legal expense seems to accrue exponentially. Lenders foreclose and sell collateral. It is pleasant for no one.
When there is no way to perform as obligated, my advice is to market and sell the property independent of the lender. The bank will necessarily be involved and will appreciate your effort. Forgiveness as opposed to judgments is a possibility. No one wants failure, trust me. If all parties proceed amicably, anything is possible. Even the non-issuance of a 1099 for the amount of debt forgiven is possible…I have seen it happen.
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