Building owner is under water and doesn’t know what to do
Question: I am not sure what to do. I purchased a commercial building in 2001 for $250,000, and I had a mortgage of about $100,000. By 2006, the price had swelled to $750,000, and an appraisal was obtained with that figure. I borrowed about $500,000 from a private lender, which I have been making payments on since. I purchased vacant lots, and I also invested in a failed internet company. My partner filed a lawsuit and obtained a judgment against me for about $150,000. I have been making payments on the first (bank) mortgage, but I haven’t been able to pay the private lender for two years now. He is threatening to foreclose. The judgment was attached to the commercial building. Bottom line: My building is worth about $300,000, and I have total debt among the three parties above of $750,000 when interest is added. Being under water $450,000, I have no idea what to do.
– James B
Answer: I am sorry to hear about your situation, which is shared by many in our area that were harmed by the epic collapse of our real estate market. As you know, the mortgages you have against your commercial property are enforced in the order they were recorded against the property. So, the first mortgage is the $100,000, and the private lender is in second position. Finally, you have the judgment against you, which constitutes a lien on your property as well. Lenders and judgment holders rightfully want to maximize their money. If the property was sold today at foreclosure sale, the judgment creditor would receive nothing, and the private lender would likely receive a small fraction of what is owed. You should consider negotiating with your creditors to see if they will all accept a reduced amount and relieve you of the shortage of money owed. Depending on your financial situation, it could be in the best interests of the judgment creditor to accept pennies on the dollar, and the private lender will want you to sell at the highest price possible. This almost always is through a private sale listed through a Realtor, rather than a foreclosure auction. Obtain a payoff from your creditors indicating that, if sold by a certain date and they receive a certain payment, they will release the mortgage or lien. You may want to consider seeking professional guidance in preparing these agreements. If successful, you will sell your property for the highest amount possible, while eliminating the excess debt this property has. Remember, it all depends on the lender, and what constitutes their best chance for maximizing payment.
Eric P. Feichthaler has lived in Cape Coral for 27 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through his chairmanship of the Harney Point Kiwanis Club KidsFest, which provides a free day of fun and learning to thousands of Cape Coral families, and funds numerous scholarships. He has been married to his wife, Mary, for 13 years, and they have four children together. Recently, he earned his board certification in Real Estate Law from the Florida Bar. He is also a Supreme Court Certified Circuit Civil Mediator.
his article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.