If a commercial borrower (or commercial tenant) falls behind on commercial building payments (or lease payments), the lender or lessor can declare a default and foreclose on the property. The execution of a mortgage or deed of trust (or lease agreement) creates a security interest in the property that gives the lender the right to start foreclosure proceedings to force a sale of the property (or eviction) upon the borrower’s failure to pay the loan/lease according to the terms.
Why Lenders Foreclose on Commercial Properties
The good news is that lenders don’t like foreclosures because they’re costly and difficult. The bad news is that lenders won’t hesitate to foreclose on past-due loans (or leases) if they aren’t given better options.
Legal Complexities of Commercial Foreclosures in Georgia
If you are a commercial property owner facing foreclosure or a commercial tenant with a landlord in foreclosure, it is essential to be aware that numerous legal intricacies are involved in foreclosures. The commercial foreclosure attorneys at Thrift McLemore have the experience and expertise to guide you through the process and ensure that you fully understand your rights under the law.
Judicial vs. Nonjudicial Commercial Foreclosures
Commercial foreclosures are, in most cases, very similar to residential foreclosures. The foreclosure may be non-judicial or judicial, depending on the state where the property is located and the terms of the loan documents. With both nonjudicial and judicial commercial foreclosures, the process starts when the borrower defaults on the mortgage.
What Constitutes a Default in Georgia?
A default occurs when the borrower falls behind in payments or fails to fulfill a requirement specified in the loan documents. After the default, the lender may accelerate, or call due, the outstanding balance on the loan. Generally, the lender must first send a breach letter to the borrower, outlining the reason for default and providing a timeframe during which the borrower may cure the default and avoid acceleration. The amount of time allowed to cure a default is typically 30 days, although this period can vary depending on the mortgage’s specific terms. Once the time period expires, if the borrower has not cured the default, then the lender may commence foreclosure proceedings.
Tenants’ Rights Following a Commercial Foreclosure in Georgia
The rights of any tenants in a foreclosed commercial property depend on the terms of the lease and the date the lease was signed. The tenant’s interest could potentially be terminated by foreclosure due to the legal concept referred to as “first in time, first in right,” which allows the purchaser of a foreclosed property to void a lease if the mortgage was executed before the lease was executed.
Understanding Subordination, Non-Disturbance, and Attornment Agreements (SNDA)
Many commercial leases contain a subordination, non-disturbance, and attornment agreement, commonly referred to as an SNDA. Under the terms of an SNDA, the tenant agrees to subordinate its interest in the lease to any lender making a loan secured by the commercial property; the tenant agrees to attorn to, or recognize, any new owner of the commercial property as its landlord; and any new owner of the commercial property agrees not to disturb the tenant’s possession of the property as long as the tenant pays rent and complies with the terms of the lease. For tenants, an SNDA provides some assurance that their rights to their premises will be preserved even if the property is foreclosed.
Dealing With Commercial Foreclosures in Georgia
The chances are that a commercial building loan is only a part of a larger financial problem. Rather than delaying, a borrower should develop a plan to address the situation immediately. Options include:
- Reorganizing, consolidating, or even eliminating debts through proceedings that may include bankruptcy
- Trying to work out a compromise with the lender
- Selling the building
Negotiating with the Lender
A lender may be willing to compromise. Possible options include the following:
- Different payment terms (lower payments over a longer period of time)
- Forgiving some late payments now in exchange for a longer period of payment
- Lower payments in exchange for a higher interest rate over a longer payment period
- Refinancing at a lower interest rate (to lower payments)
Deeds in Lieu of Foreclosure
If a lender is unwilling to compromise, consider offering to convey the property back to the lender voluntarily through a “deed in lieu of foreclosure” (sometimes referred to as a “deed in lieu of forfeiture”). A lender may be hesitant to accept a “deed in lieu” if state law provides a borrower with the right to redeem the property for a certain period (e.g., up to a year later).
Protect Your Georgia Business From Commercial Foreclosure
If you are a Georgia commercial property owner facing foreclosure or a tenant whose landlord is in foreclosure, you do not have to face the process alone. The Georgia commercial foreclosure attorneys at Thrift McLemore are here to explain your options, protect your rights, and help you find the best path forward.
Call us today at 678-882-0830 or email info@thriftlegal.com to schedule a consultation and get the guidance you need.
