{"id":20198,"date":"2019-01-11T15:14:21","date_gmt":"2019-01-11T13:14:21","guid":{"rendered":"https:\/\/www.commercialcafe.com\/blog\/?p=20198"},"modified":"2025-03-25T14:24:06","modified_gmt":"2025-03-25T11:24:06","slug":"everything-need-know-commercial-foreclosures","status":"publish","type":"post","link":"https:\/\/www.commercialcafe.com\/blog\/everything-need-know-commercial-foreclosures\/","title":{"rendered":"Everything You Need To Know About Commercial Foreclosures"},"content":{"rendered":"

A commercial foreclosure occurs because the borrower hasn\u2019t kept up on the mortgage payments or has violated another term of a commercial loan<\/a>, such as not maintaining the debt coverage ratio required by the lender or not paying property tax. When a lender forecloses it takes back the property from the borrower.<\/p>\n

Each state has its own laws covering commercial foreclosures. Here are the key items to know about foreclosures in commercial real estate<\/a>.<\/p>\n

There Are Two Types Of Commercial Foreclosures<\/h4>\n

The two types of commercial real estate foreclosures are judicial<\/strong> and nonjudicial<\/strong>. The specific foreclosure process that is followed depends on the state where the property is located and the terms and conditions of the mortgage document.<\/p>\n

Judicial foreclosure process<\/strong><\/p>\n

The judicial foreclosure process requires the lender to go to court and file a lawsuit against the borrower \u2014 sometimes called a notice to “cure or quit”. The borrower then has a certain amount of time \u2013 usually between 20 and 30 days \u2013 to file a response with the court.<\/p>\n

If the borrower decides to contest the foreclosure, the borrower and the lender go to trial court \u2014 sometimes called “acceleration”. The auction date is set at this time and is usually 90 days from the filing of the acceleration. If the lender wins the lawsuit, a judgment of foreclosure and order of sale is awarded to the lender. A foreclosure sale is scheduled to sell the property and satisfy the outstanding mortgage debt.<\/p>\n

Because the courts are involved, judicial foreclosures usually take much more time to complete than nonjudicial foreclosures.<\/p>\n

Nonjudicial foreclosure process<\/strong><\/p>\n

In some states, a lender can use the nonjudicial foreclosure process to take the property back from the borrower. State law must allow nonjudicial foreclosure, and the loan documents must include a power of sale clause.<\/p>\n

As the name implies, nonjudicial foreclosures are a legal alternative to the court system, allowing lenders to foreclose on a property much more quickly than with a judicial foreclosure. The exact steps followed during a nonjudicial foreclosure vary depending on jurisdiction, but in general, they include mailing the borrower a written notice of default, posting a notice of sale on the property, then foreclosing and selling the property at auction to satisfy the outstanding loan amount.<\/p>\n

Twenty-nine states currently allow nonjudicial foreclosures, including California, the District of Columbia, Texas, and West Virginia.<\/p>\n

Court-Appointed Receivers In The Commercial Foreclosure Process<\/h4>\n

Even with a faster nonjudicial foreclosure process, foreclosure can take several months. When the acceleration documents are filed, the court will usually appoint a receiver. The receiver takes over ownership responsibilities from the defaulting borrower.<\/p>\n

In both the judicial and nonjudicial commercial foreclosure process the lender can ask the court to appoint a receiver to manage the property until the foreclosure is finished. Responsibilities of a court-appointed receiver include:<\/p>\n