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  • Writer's pictureColin Dubel

Bank Closures & CRE Financing

A bank closure can occur for various reasons, including:


Insolvency: If a bank's liabilities exceed its assets, it may be unable to meet its financial obligations, leading to insolvency. In such a situation, the bank may be forced to shut down.


Liquidity Problems: A bank may face liquidity problems if it is unable to meet its short-term obligations, such as withdrawals by depositors. If a bank is unable to raise funds to meet its obligations, it may be forced to close its doors.


Regulatory Violations: Banks are subject to various regulations, and failure to comply with these regulations can result in regulatory sanctions, including closure. For example, if a bank engages in illegal activities, such as money laundering, it may face regulatory action.


Management Issues: Poor management decisions, such as risky lending practices or inadequate risk management, can result in significant losses for a bank. If these losses are severe enough, they may lead to the bank's closure.


Economic Conditions: Economic downturns can have a significant impact on banks, particularly if they are heavily exposed to certain sectors or types of borrowers. If the economy worsens and borrowers default on their loans, banks may face significant losses and may be forced to close.


A bank closure can have a significant impact on commercial real estate financing in several ways:


Reduced Access to Credit: If a bank that specializes in commercial real estate financing closes, borrowers may have fewer options for obtaining financing. This can make it more challenging for borrowers to purchase or refinance commercial real estate.


Delayed or Cancelled Loan Approvals: If a bank closure occurs while a borrower is in the process of obtaining financing, loan approvals may be delayed or even cancelled. This can cause significant disruption to borrowers who may need financing to complete a real estate transaction.


Increased Interest Rates: If there is a decrease in the number of lenders providing commercial real estate financing due to a bank closure, it may result in increased competition among remaining lenders. This can lead to an increase in interest rates for commercial real estate loans.


Distressed Asset Sales: In some cases, a bank closure may lead to distressed asset sales, where assets are sold at a lower price than their market value. This can impact commercial real estate borrowers who may be forced to sell their properties at a lower price, resulting in losses.


Overall, a bank closure can create uncertainty and disruption in the commercial real estate financing market, making it more challenging for borrowers to obtain financing and potentially leading to increased costs.


If your current lender undergoes a closure, what happens to your loan will depend on several factors, including the specific circumstances of the lender's closure, the terms of your loan agreement, and any applicable laws and regulations.


In most cases, if your lender undergoes a closure, the loan agreement will remain in effect and the terms of the loan will not change. However, the servicing of the loan may be transferred to another lender or loan servicer. This means that you may need to make your loan payments to a different entity than your original lender.


If your loan is sold or transferred to another lender or servicer, you should receive notification of the transfer, including information about the new lender or servicer and where to send your payments. You should also receive information about any changes to the terms of your loan, such as interest rates or repayment schedules.


It's important to note that if your lender undergoes a closure, you may experience delays in the servicing of your loan, including the processing of payments and the handling of any customer service inquiries. It's important to stay in contact with your lender or loan servicer and to keep accurate records of your payments and communications.


If your lender undergoes a closure and you have concerns about your loan, you may wish to consult with a legal or financial professional for guidance on your options and rights under applicable laws and regulations.


If you have any questions about this article or would like to discuss a scenario of your own with our team, please feel free to contact Colin Dubel at colin@harborwestcommercial.com or 949-735-6415.

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