Rather than renting, some business owners in the Detroit metro area chose to purchase a building to serve as their place of business. Often this involves taking out a mortgage from a bank or creditor. However, sometimes business is not so good and the company fails to make a profit. If the business owner cannot pay back the bank or creditor they took out a mortgage with, it could lead to foreclosure.
What is foreclosure?
When a business purchases real estate, the purchase agreement will contain a provision that permits the bank or creditor to take back the property if the business fails to pay its mortgage. Some purchase agreements also include an acceleration clause stating that the business may owe the entire amount of the mortgage if they fail to make payments on time and in full.
If the business defaults on its mortgage, the creditor will notify the business that it has a certain time period, known as a redemption period, to come current on what they owe, including any applicable penalties and interest. If the business cannot do so, their property will be seized and sold in a process known as foreclosure, and the proceeds from the sale will go to the primary lien holder, and then secondary lien holders.
Preventing or delaying foreclosure
There are some ways that a business can either delay or prevent foreclosure. They may try to get their loan refinanced or borrow money from other sources. They may personally guarantee the loan. Depending on the terms of their purchase agreement, they may be able to file a restraining order. Finally, they may choose to file for commercial bankruptcy.
Learn more about business foreclosures
Ultimately, this post is for educational purposes only and does not contain legal advice. Those in Birmingham who want to learn more about business foreclosure are encouraged to explore our firm’s website for further information.