Working with a special servicer
Most special servicing loans are delinquent mortgages, meaning the borrower is 90 days or more past due on their loan. However, some special servicing loans are flagged as sub-performing or troubled loans because of the property's condition, past-due property taxes, lapsed property insurance, or a loss of a large tenant. These loans are seen as potential problem loans and are sent to the special servicer to help find a resolution before they become a further liability.
Because there are far more regulatory hoops to jump through in the special servicing world, special servicers charge CMBS trusts or loan companies more than a standard servicing firm does for their duties. They also get paid on a loan-by-loan basis for as long as the loan is in special servicing, which many see as a potential conflict of interest since the longer the loan is in special servicing, the more money the company makes.
Some special servicing companies are better to work with than others and are better equipped to offer assistance to borrowers in need through a streamlined process. If your commercial loan is in special servicing, you should immediately contact the special servicing company to request assistance -- the sooner you contact them, the better. Each company will have a different process for applying for foreclosure prevention alternatives, but most start with an application for assistance and a hardship letter.
Certain special servicers can take weeks or even months to decide if you qualify for assistance, and in most cases will continue to proceed with foreclosure in the meantime. If you are mid- to late-stage foreclosure, contact your servicing company but also look at alternatives in the private market, such as selling the property to pay off the loan if there’s equity.
Special servicing has an important role in the mortgage marketplace, especially in troubled times where loan delinquency is high. While they can provide much-needed assistance to commercial property owners and real estate investors, sometimes they fall short. Working with a special servicing provider in most cases should be avoided if possible.