Tell me about your business. It seems to have two sides—helping others with real estate challenges and running your own real estate company. How do those fit together?
The investment side is really secondary. We do some of it, but we’re not out chasing deals. Our main focus is helping property owners who are struggling with their loans. We start by understanding their obligations and identifying any leverage they have with their lenders, then we work toward a solution.
Our goal is to show the lenders that the owner is part of the solution, not the problem. We come in, clear up misunderstandings, fix communication breakdowns, and help get the property back on solid footing under a new loan structure. It’s a lot of educating, guiding and convincing.
There are a lot of angles to what you just said. Let’s start with the first step: analyzing the mortgage documents.
That’s right, and it’s a deep process. We’re not doing a legal review in the traditional sense. Most borrowers think that as long as they make their monthly payments on time, everything will be fine. But modern loan documents, whether it’s a large, sophisticated loan or even a small local bank loan, are far more complex than most realize.
The problem is that borrowers rarely take the time to truly understand them, and attorneys often don’t bridge that gap either. The borrower is an expert in running the property, and the attorney is an expert in legal language, but they rarely sit down together to discuss how a clause will affect day-to-day operations.
So you’ll have a clause that might directly impact how you collect rent or pay expenses, yet it’s often glossed over. And when problems arise, the borrower assumes the lender is being unreasonable without realizing they already agreed to terms that now give the lender the upper hand.
So you’re not necessarily talking about loans that are in default because of lack of payment. They may be in default because of some technicalities.
Exactly. It often starts with something technical. The borrower thinks everything is fine because they don’t realize the loan documents clearly state that this “technicality” is actually a violation. When they do find out, their reaction is often, “Why is the lender being so unreasonable? I’ve never missed a payment!” without understanding the lender’s reasoning.
Then they might hire an attorney to fight it and decide to withhold mortgage payments as leverage, and suddenly it has gone from a minor issue to a full-blown default. The truth is that a lender isn’t going to lose sleep over one borrower not paying a single mortgage. Meanwhile, the borrower can spiral from the excitement of closing a deal to confusion over what’s happening, and ultimately to losing the property—and all because of a lack of knowledge, focus and diligence.
Can you give an example of a technical matter that can cause someone to be in default even though they’ve been paying their mortgage on time?
Let’s discuss one that has become very prevalent, which is known as a lockbox. Usually, when a lender makes a loan, you give them the property as collateral—that’s why they’re giving you the loan. You have the note, which is the promise to repay, and the mortgage, which ties the property to the note so the lender can foreclose if you don’t pay.
But in commercial mortgages, there’s often an additional layer most borrowers don’t think about: the assignment of leases and rents. That means you’re not only giving the lender the property, you’re also giving them the rights to all leases, rents, and essentially all the income the property generates. In other words, they control everything the property owns and everything the company that owns the property owns.
The lender lets you keep using that income as long as you’re not in default. Meaning, not only is the property collateral but so is your bank account for the property and your lease with the tenant.
It’s very different from foreclosing on a building. To take the building, the lender has to go through the courts in a foreclosure process. With rents, it’s instant. Once you’re in default, you lose access to that income.
To make it even tighter, many lenders now use what’s called a lockbox. All rent payments from tenants go into a special account that’s jointly controlled by the lender and the borrower. If the lender declares a default, even a technical one, they can immediately block your access to that money.
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