Did you know that losing a commercial property in foreclosure means that you will most likely also have to pay income taxes as a result? Sounds illogical and most investors are shocked to learn about it. But careful planning can help to at least minimize this additional insult. This article explains how property sales, loan modifications and investment losses are treated for tax purposes.
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Tax Considerations
A recent article in the Wall Street Journal* placed a spotlight on the role of “middlemen”, or special servicers as they are known in the CMBS loan marketplace. It described how high profile investors such as Andrew Farkas and his Island Capital Group recently bought special servicer C-III, and how Fortress Investment Group, which purchased CW Capital, are seeking to profit by purchasing these special servicers, thereby getting a “front row seat,” to distressed commercial real estate assets sold at auction, a scenario that many view as replete with conflict of interest issues.
CMBS loans are securities backed by pools of commercial real estate mortgages and which are administered by master servicers. When a CMBS loan goes into default, the master servicer passes the loan to a special servicer, which is charged with working out loans on behalf of the investors who bought the bonds. On the one hand, the special servicers are supposed to represent the interests of the bondholders. On the other, the same special servicers have the right to buy the distressed asset as long as they pay a fair market value. Hence, the conflict. While the article goes on to focus on conflicts within the CMBS investment marketplace, the impact will be felt by CMBS borrowers as well.
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CMBS Loans, Special Servicers
A strategically designed commercial workout that combined loan modification, bankruptcy, and a “White Knight” investor saves country club from imminent foreclosure and breathes new life into a 50-year old San Rafael institution.
San Diego, CA (PRWeb) March 16, 2011 – Breakwater Equity Partners, a consulting firm specializing in commercial loan workouts, announced today the successful restructuring of Peacock Gap Country Club and Spa, a 50-year old golf course located in San Rafael, CA. Foreclosure on the 137 acre, 18-hole golf course was averted when a new investor purchased the defaulted note from the lender, Nara Bank.
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Breakwater Equity Partners, Commercial Loan Modification, Commercial Loan Workouts, Commercial Real Estate Debt Restructuring, Golf Course Commercial Loan Workout, Troubled Assets
Rendering of 610 Lexington, subject of Bad Boy Guarantee law suit
With the ongoing debate about whether bankruptcies or foreclosures are easier for the market to digest, it would appear that “bad boy guarantees” are definitely limiting the number of bankruptcies and slowing the debt removal process. These guarantees, also called “springing guarantees” were initiated in the 1980s, but became more noticeable in the 1990s. They were a response to the tendency of borrowers to file a Chapter 11 bankruptcy motion just days before a lender was in position to foreclose.
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Commercial Loan Workouts, Commercial Real Estate Debt Restructuring
