Expert: Dick Dennis - 2/25/2010

Question
Hi Dick,
We have a commercial mortgage in New Mexico for a commercial building that was planned to either have been sold for a profit or rented for a profit. Unfortunately, due to bad timing in the market, neither scenario has taken place.  The mortgage was for $635,000.00 with the company investing $300,000.00 cash.  The property is now valued at approximately $525,000.00 - $550,000.00. This has become quite a drain on the investors as the mortgage payments are approximately $6300.00/month. What are the consequences if we just cut our losses and quit paying the mortgage?
Thanks

Answer
Interesting that you asked that question, Marilyn. On page 4 of the March issue of my monthly real estate advisory, The Landed Gentry, I published an article that I picked up from online. The story tells of how Tishman Speyer Properties and BlackRock Realty bought an 11,000-apartment, 110-building property in Manhattan, NY for $5.4 BILLION in 2006.

Last month it became the largest foreclosure in history! The manager/owners plus their investors (several pension funds from California, Singapore and even the Church of England) lost $850 million. Yes, they just quit paying their mortgages after the property's value fell to $2 Billion.

Of course, I think I can assure you that the investors and instigating owners didn't take that drastic step without consulting with their attorneys. That's what I am advising you to do. Consult a good New Mexico REAL ESTATE attorney, one who has had experience in businesses, too, and find out what the ramifications are if indeed you just walk away from your commercial property.

Commercial properties are taking a big hit all over the place. That is part of the reason why people are out of work and people are losing their homes. Before you walk away, you might consider offering the the mortgage holders a figure that you can afford. If they do not see things your way . . . do what you have to do.

I understand things are not that bad where you are in Canada. And I just hope you guys don't catch this terrible disease. I do wish you well.

Dick Dennis
dixiedee13@aol.com