Request Denied – Game Over?

Request Denied

by Bjorn Borgenhard

So, you have been in Special Servicing for 6 months. You have accommodated every request from the Special Servicer for additional information and cooperated with the seemingly endless line of appraisers and property inspectors. You have submitted what you think is a reasonable CMBS loan modification/restructure proposal and now you are waiting for feedback.

Then you get a cold, impersonal form letter in the mail stating that your request has been denied. You feel like someone punched you in the stomach. After all that effort, all you get is a form letter with no explanation! At this point many Borrowers give up and just accept foreclosure or hand the keys back.

Stop right there!

What you may not know is that 99% of all initial CMBS loan modification requests are denied. Special Servicers routinely issue these letters even if there is some merit to your initial proposal. This is a function of potential Lender Liability claims if they let proposals linger without a response. These letters serve as a means of wiping the slate clean from this perspective. They do NOT necessarily mean that the game is over.

On the contrary, it may be just the start of the serious negotiations that are about to ensue. This is the point where various options will be explored in order to find one that aligns all the parties involved including Bondholders, Special Servicers, Directing Certificate Holders and Rating Agencies.

Though the deal you ultimately accept may not look close to what you initially proposed, the only way to get a deal is to keep trying various options until you get in the ballpark of what is acceptable. All the while trying to interpret what the Special Servicer is saying.

They will rarely come right out and tell you the terms of what they may accept, because their goal is to make the best deal for them, not you! We routinely see deals in this stage for several months while offers and responses go back and forth. This is why it is imperative to have someone on your team that have inside experience with the ability to interpret what the Special Servicer is really saying.

Many times “NO” really means “MAYBE” or “TRY AGAIN”.