I received a call the other day from a real estate investor with a slightly underwater commercial property in Northern California. The building's only tenant is seeking a $1000/mo reduction in rent or else they claim they'll move out when the lease expires in two months.
The building has been on the market for several months without a single showing. Maybe it's priced too high or maybe it's a lousy property. I'm not sure since I've never seen it nor do I know the East Bay commercial real estate market.
In our discussion, the owner said she no longer wants the headache of the tenant or the upkeep or any of the not so glamorous jobs associated with being a landlord.
Fortunately for her, the loan was underwritten and still owned by a local community bank, and not part of a Commercial Mortgage Backed Security (CMBS) trust being serviced in some far off call center where every one of the minimally trained "associates" has that unmistakable Texas or Florida accent. (You know the one that gives you a fleeting sense of dread that none of your questions will be answered and you'll finish the call more confused than you were before you called. Yes, that accent!).
The solution is pretty simple for this investor: call up the local bank that holds the Note and explain the situation (spouse dying), letting them know that you'd like to sign a Deed In Lieu rather than go through the short sale process or default on payments.
Logically, it makes sense that a community bank would be receptive to this offer from a borrower. However, what I've noticed over the past few years, is that each bank reacts differently depending on their financial health. Some community banks are still winding down the bad loans they made on commercial buildings or to housing developers during the bubble years. Other banks took their losses in 2008-2009, have recapitalized, and are back to lending, though much more conservatively than they were before.
A Deed In Lieu can be executed relatively quickly, sometimes within two weeks. During my distressed asset management days, we executed several DILs in one week, mostly on Florida properties where the homeowner would receive a check for a few thousand dollars. Normal turn times is about a month for commercial or private money lenders.
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