Breached Covenant on Commercial Loan

[Nick Donato]

Hello, 

I have a 12 plex in Colorado Springs and First Bank is handling the loan.  They recently said I breached the covenant of the mortgage by not meeting their Debt Coverage Ratio of 1.3 in 2022.  Due to this, they have given me several really expensive options including paying roughly a third of the loan off to make it right with them.

They are correct that in 2022, for this property, things have not been great but for 2023 to date we have done fine and would qualify for their Debt Coverage Ratio without issue.  I've also made every mortgage payment without issue.  I'm not really sure why they are doing this except that maybe it is a cash grab as my current rate is pretty good by todays standards. 

I've spoken to some other lenders and they say I may have a legal case saying they are causing unnecessary financial hardship on me as the issue has been rectified. 

I know that if this was a residential loan I'd be in a better position as lenders can't really call the loan due if payments are made but commercial lending doesn't seem very friendly to the borrow. 

Is there an argument that I could push back on with them?   I feel that if I can push back some they would drop it as they don't have much to gain by pushing on this. 

[Brian Kooienga]

I'm a former commercial real estate banker. You have to read your Loan Agreement and find out what your cure provisions are after breaking the DSCR covenant. As long as you cured the technical default under the terms of the LA, then the Bank has no further recourse. Your loan agreement will define what your options are.