There are several reasons why borrowers may request an extension of the loan maturity date. Extensions are granted on a case-by-case basis taking into consideration a number of factors, including (but not limited to) payment track record, exit strategy, property value, title review, etc. Typically, an extension fee is paid by the borrower and PeerStreet will distribute 50% of the extension fee it collects to you and other investors, on a pro rata basis.
The most common scenarios that PeerStreet reviews for loan maturity extensions are the following:
Property Renovation Delays
In some cases, due to delays in permitting and construction, additional time is required to complete the renovations and to execute the refinance of the loan or the sale of the property.
Typically, if a loan goes past maturity and there’s no pre-existing extension option, it enters into “maturity default.” In these cases, borrowers may request an extension or they may choose to keep the loan in maturity default while working toward a resolution.
While maturity defaults can seem problematic because the borrower has not paid off the loan when due, there are some cases that are acceptable to loan originators as normal business practice. 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 late fees and interest (including default interest, if any is due) on the existing loan rather than extend the loan for the short period until the property is sold. In these cases, PeerStreet will initiate the foreclosure process in case the borrower’s execution of the sale fails.
When a borrower is negotiating a refinance with another lender, they may also choose to request an extension or to keep the loan in maturity default while they negotiate (similar to when they have a pending sale on the property). In these cases, PeerStreet will typically either extend the loan and collect an extension fee or will collect default interest upon payoff of the loan. If no extension agreement is signed, then PeerStreet will initiate the foreclosure process in case the borrower’s execution of the refinance of the loan fails.