What is Commercial Real Estate Loan Servicing?
Commercial real estate loan servicing refers to the management of a commercial real estate loan after it has been funded. This includes collecting loan payments, managing escrow accounts, handling borrower inquiries and requests, processing loan modifications or refinancing, and managing the foreclosure process if the borrower defaults.
The loan servicer is often different from the lender who financed the property because lenders may not want to handle the ongoing management and administration of loans. Servicing loans requires specialized skills and resources, such as technology platforms, legal expertise, and personnel to manage borrower relationships, process payments and respond to inquiries.
Lenders may prefer to focus on originating new loans, underwriting credit risk, and other core lending activities. Therefore, they may outsource the loan servicing function to third-party companies or special purpose entities that specialize in loan servicing.
In some cases, the loan servicing rights may be sold to another company after the loan has been originated, while in other cases, the lender may retain the servicing rights but hire a third-party servicer to manage the loans on their behalf. This separation allows the lender to focus on its core lending activities and provides the borrower with a dedicated point of contact for loan servicing needs.
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