If you’ve been keeping up with the blog, you’re well versed in borrower extension options. To refresh, those are loan extensions that the borrower and lender negotiate at origination. While this is probably the most common type of extension, loans can also be extended past the stated maturity date when a borrower extension option doesn’t exist. We will discuss why this may occur so investors can get comfortable with various scenarios that may affect investment term and payment timing.
Is Maturity Default Always a Negative Scenario?
Typically, if a loan goes past maturity and there’s no pre-existing extension option, it enters into maturity default. While maturity defaults can signify a red flag because the borrower has not paid the loan when due, there are causes for late payoffs that lenders typically get comfortable with. For example, a property may be under contract to be sold, but the sale is not complete. In this case, the borrower has effectively made a decision to pay interest (including default interest, if any is due) on the existing loan rather than refinance or extend the loan for the short period until the property is sold.
A similar set of circumstances can occur when a borrower has decided to refinance the property but the refinancing has not yet closed. In this case, the borrower goes into maturity default on the existing loan while finalizing takeout financing. In cases where there is a maturity default, PeerStreet has options, including the granting of a short-term extension (typically two-to-three months) or proceeding with a foreclosure process. Extensions are granted on a case-by-case basis taking into consideration a number of factors. Of particular importance are a strong payment track record and a new valuation indicating an acceptable LTV ratio. Typically in such situations, an extension fee is paid by the borrower and shared with investors in that particular loan.
How PeerStreet Acts in the Event of a Default
Sometimes, surpassing the maturity date is indicative of a material problem with a loan, and in those instances, PeerStreet is closely involved in remedying the problem. In the event that we begin the foreclosure process, this may expedite the borrower paying off the loan, and at any time before or after the foreclosure process commences, PeerStreet may elect to restructure the loan. If initiating the foreclosure process does not result in the borrower paying off the loan, and we do not restructure or extend the loan, then PeerStreet would take steps to sell the collateral and return recovered proceeds to investors as soon as possible.
Our real estate team has extensive experience in origination, asset management, workouts and restructurings. In any situation, the team will collectively work towards a solution with investor’s interest in mind. Investors can expect to be kept up-to-date on the status of all their loan investments in the notifications section of their dashboard. If you ever have questions about PeerStreet investments, you can always reach out to email@example.com and our team would be more than happy to help.
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