Yes Virginia, there is a Santa Claus.  However this Santa is not one you may have thought of.  The Federal Government – through its regulatory agencies the FDIC and the OCC – is putting significant pressure on commercial banks to reduce the percentage of their capital invested in CRE loans.  If banks fail to comply they may be subject to various penalties from the regulators.

This pressure on banks creates an unusual opportunity for commercial real estate borrowers subject to bank loans.  Banks are now frequently willing to discount loans on commercial real estate (even performing loans) to borrowers who can pay off their loan in a relatively short time frame.  If you owe a bank $1,000,000 on their note and they accept a payoff of $850,000, then you have just made $150,000 without any risk.

Montegra Capital, a Colorado hard money lender, is seeing an increase in this type of loan request with banks offering anywhere from a 10% to 25% discount on loans that can be taken off their books in approximately 30 days.  Even loans that are of institutional quality are being discounted but ironically institutions such as life insurance companies and other commercial banks typically cannot react fast enough to allow the owner of the real estate to get the discounted pay off.

Because of the time frame disconnect many property owners are turning to private capital real estate lenders who can move quickly to allow them to make this risk free debt reduction happen.  Owners increasingly understand that it makes sense to pay the higher loan rates charged by private capital hard money lenders to obtain the financing that allows them to pay off their bank loan at a discount.

However, owners need to be sure to consult with their CPA to structure a discounted pay off in a way that will avoid certain tax penalties that can occur through this type of debt forgiveness.  Failure to structure the payoff correctly can be expensive.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.