Commercial vs. Residential Foreclosure Differences

[Shafi Noss]

Anyone have perspective to lend on the differences between a commercial and residential foreclosures. Things like auction process, frequency lender repossession, for example through a deed in lieu, allowing financing, differences in trustee responsibilities for DOT states, foreclosure costs and timeline, etc.

One specific question would be if foreclosure bids have to be in cash like they often do in residential, there probably is a much smaller buyer pool and a much higher likelihood of lender repossession. Since commercial loans are made at lower LTVs that residential, wouldn't that mean lenders profit from foreclosures? Trying to understand the overall picture. 

Also no relation to Tyler but interested in Texas in particular over other states.

[Chris Seveney]

Quote from @Shafi Noss:

@Chris Seveney Thanks for replying. I'll add more detail to the scenario I mentioned in the original post. 

Suppose a commercial asset worth $20M goes into foreclosure with a loan of $14M. In residential, a foreclosure auction usually requires cash. Is it the same in commercial? There are far fewer buyers who have access to $14M cash so if the lender needs to make a credit bid, they're likely to profit on their foreclosure, even if the foreclosed property has management or maintenance problems. Is this how it works? Does this happen frequently? If not what is the real dynamic?

In addition, if there's anything that would be hard to think to ask but worth knowing, I'm interested. For example residential values are tied to homeowner sentiment in a way investor-owned commercial values are not. Perhaps this means that the drop in value at foreclosure for one is greater than the other. 

Whether or not that's true, it would be difficult for me to ask about patterns like that by thinking them all up ahead of time, but somebody experienced might know and be able to share. I get that it may be difficult for them to think things up without context but I've got to start somewhere.

As for the state feel free to use Texas if the variance between states is too difficult to write out simply

 In general it is the same process. Just remember banks want know business owning commercial real estate as they have no idea how to manage it, so they do not want it back.I just came back from a bank special assets conference and anything assisted living, hospitality or office they will sell at a discount because they do not want to take it back.

single family of course is based on residential values and commercial is based on cap rates. You are already seeing defaults on commercial assets and those assets going to sale.