Commercial Loans - Do banks like to foreclose on good CRE?

Question

In general, what is the main reason for a commercial bank to keep up so much scrutiny on commercial loans?  Is it mainly to pre-emptively take foreclosure action if a borrower is having financial problems?   Or is it merely to find info so they can solicit us?

The reason I'm asking is that we are repeatedly asked for updated financial info and docs by our commercial lender.  I don't like providing this , as it feels like they're doing full underwriting on a well performing property with low debt to equity...extremely low.  I've already sent them property docs as the property doing fine.

I'm just speaking generally, but do banks often try to just foreclose on sound commercial properties?   Or is it just that they want to get our info to solicit us with other lending products?

A week or so after I got all this scrutiny our commercial bank  starts calling me and soliciting me to refinance other loans on other investment properties that they just requested from us.  Basically claiming that they could beat other rates etc... freaking annoying

I'm just tired of sending them stuff and want to see how much I can "push the bank back" without them starting a foreclosure on a ridiculously well-performing property.

Will F. · Answer

Hi.  I doubt they would actually foreclose, but I wanted to see if this ever happens in CRE. (They are definitely a nuisance to me getting things done.)  I just don't see the reasoning for wanting this much info on stellar borrowers with a low-risk property.... Like if a bank would just purposely foreclose on a low LTV property.  Just the verbiage of their notices and how quickly they give follow up notices.

It's non-residential so maybe that's why they're so annoying.

I'm an investor builder, and these are value-add properties.  I've dropped $150k cash on the property and lots of work so I simply didn't have time to fill out a lot of their "required" financial docs... Like petty rent roll and having to update them on all my other business.  It just feels too invasive, so I've pushed off filling out their docs especially considering they have no bearing on the potential of this property.  It's not at all a high-risk property either.

Now their verbiage state's things like "default rate" that I would have to increase my interest on a loan.  Like technically I'm in default on their loan because I'm not sending them these silly docs.

BTW I put 60% down on this property and it performs well despite some vacancy.  The vacancy is in units that I'm throwing $30k TI credits on and the tenant is throwing another $80k at.  It's laughable that they're questioning the vacancy during this period.  There's 0 logic and it frustrates me.

I guess at this time I simply don't want to give them my info cuz I'm private.  I realize why residential real estate is so much more attractive.

It's also a local bank... I've done doc commercial loans before and they usually just want our taxes and a financial statement... these guys want all sorts of annoying information, and the more I give them the more they ask.

I'm interested in just seeing why a bank like this is so aggressive with their clients... or is this normal.... I guess at this point I'm just venting. lol

Jared Rine · Answer

@Will F....sounds like a frustrating process.  Interested to know who the bank is.  Being a broker and handling commercial loans and working with some banks, to answer your question, no generally, a bank doesn't want to foreclose on any of a borrower's property(ies).  Most of the time also, the information that is being asked for is also not for solicitation either.  It should be for neither of those, as the bank has to make sound decisions based on the the property strength and also borrower strength, based on their innate guidelines, or based upon guidelines that are above them (if they are selling their paper and not holding it in house).  ...Question though, based on your posting...why would the bank start a foreclosure on your property?  Unless you're in default, they have no means to action.

Thanks,

Priyanshu Adathakkar · Answer

It all depends on type of loan product you have and the terms. As long as you are not in default you are good.