While some special servicers are relatively accommodating to CMBS borrowers and take a variety of actions in an attempt to get the borrower current on their loan, other special servicers may not be so accommodating and may attempt to take advantage of the situation to further their own financial interest. Special Servicers, CMBS Loans, and Property Repossessions In more severe situations, such as when a loan’s debt service coverage ratio (DSCR) has fallen well below 1.0x, or if the borrower has committed fraud, the special servicer may attempt to go to court to repossess the property. When a forbearance is issued, a borrower’s payments are reduced or eliminated for a specific amount of time, though they will generally be required to pay their loan payments back later, potentially with additional interest and fees. This could include engaging in a loan workout or modification, which could include forbearance. The special servicer will take the steps it deems appropriate to ensure that bond payments continue as expected for the CMBS investors. Like the other servicer, the special servicer’s obligation is to the investors in the commercial mortgage-backed securities that the borrower’s property collateralizes.
When a CMBS loan goes into default or looks like it’s approaching default, the loan is assigned to a new servicer, called a special servicer. CMBS loan borrowing covenants can be strict, and even if a borrower is current on their payment, if they fail to send required documentation to their servicer on time, lose a major tenant, or make unapproved upgrades to their property, their loan could go into a “technical default.” However, this servicing arrangement only continues as long as the borrower remains current on their payments and avoids going into financial or technical default. If the master servicer is large, they may further assign the loan to a primary servicer, also known as a sub-servicer. During the CMBS loan origination process, the borrower is assigned a separate servicing company, referred to as a master servicer. Unlike loans from banks and private lenders, CMBS loans are not serviced by their original lender. Special Servicers Handle CMBS Loans Before and During Defaults
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