Although the public has most certainly been made aware of the massive amounts of residential properties being foreclosed upon, most are not aware of the amount of commercial properties that are either delinquent or soon to be so. Towards the end of the residential real estate boom, the commercial real estate market also saw a boom itself. Fueled by easy credit and new investors entering the market the commercial real estate market exploded.

Thousands of these properties were purchased at the height of the market and were highly leveraged. These properties may have performed well enough to cover debt service and operating costs when occupancy rates were at historic highs, but now that businesses are tightening their belts, unemployment is rising, consumers are not spending money on goods and services or traveling the pressure is mounting on commercial property owners. This scenario has left these commercial owners in an extremely precarious situation. If the poor economy doesn’t push these owners to a breaking point, the lender that holds the mortgage on the property will.

Most of these properties were purchased or refinanced with short term financing and those notes are coming due within the next year or two. Combine the loss of rental income, the weakened financial condition of the property owner and then add in the tightest credit market in the last 60 years many commercial property owners are seeing this as economic Armageddon.

With the tightening of the credit markets combined with the poor financial condition of the borrower, banks are calling in their notes and not renewing them. When the bank calls the note due, these owners do not have the money to payoff the loan and obtaining new financing in not a viable option for the same reason the current lender is not renewing the loan. If nothing gets done on the commercial property owners behalf many could be facing a personal bankruptcy. This is a frightening proposition for a savvy real estate investor who spent a lifetime building assets for his or her family only to see them wiped out in an instant. Many of these commercial owners are now looking for ways to fight back and keep the properties they have invested so much money in.

There are two options available to a commercial property owner in this situation. The first option is to restructure the debt through Chapter 11 reorganization in a bankruptcy proceeding. This is the most effective tool, but a certain criterion must be met in order to proceed in this direction. If Chapter 11 is not an option for the property owner, then litigating the foreclosure action becomes the next best option.

The property owner can assert all claims applicable against the bank. These claims are similar to ones used in residential foreclosure litigation. They include fraud in the inducement and violations of the fair and deceptive trade practices statute. In the face of costly litigation and the possibility of losing on the issues asserted by the property owner, a lender will often look at other options other than a foreclosure.

Just like residential property owners, commercial property owners are starting to realize there are options available to them. They are taking legal action to protect their property rights and investment.

Matt Englett is a foreclosure defense attorney with the Orlando based firm of Kauffman, Englett And Lynd. He can be reached at 407-513-1901.