Residential foreclosures became a topic of national importance during the recent recession. While foreclosures of commercial property did not become a national issue, they take place on a regular basis in New York and around the country. When owners of commercial real estate face foreclosure by a lender, they should keep in mind that they do have rights under New York law.
When the borrower, known as the mortgagor, defaults on the terms of a mortgage loan, the lender, known as the mortgagee, has the right to foreclose. The most common form of default is the failure to make timely payments on the loan. Other defaults, such as failing to maintain insurance on the property, can also trigger foreclosure.
Most mortgages contain acceleration clauses, which provide that once default occurs the lender has the right to demand payment of the full outstanding balance plus costs and attorneys' fees. The lender is usually obligated to send the mortgagor a notice of default providing a time period for the mortgagor to cure the default and avoid foreclosure.
The procedures for commercial foreclosures are generally similar to those for residential foreclosures. In New York, the primary foreclosure method is judicial sale. The court supervises a sale of the property, with the proceeds allocated first to the mortgage holder, then to other lienholders, and finally to the mortgagor.
Foreclosure is generally a method of last resort for a lender seeking to collect payments on a mortgage. It is often possible for a commercial property owner to avoid foreclosure by negotiating a restructuring of the loan. Knowing one's legal rights in the foreclosure process can be a significant advantage in any such negotiations.
Source: Findlaw.com, "What is Foreclosure?" accessed May 15, 2015