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Lindley Estes is a business writer for The Free Lance-Star and This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.

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Silver Cos. pushes bill to aid commercial real estate borrowers

Members of the Fredericksburg-area commercial real estate development community worked this year to get a bill passed by the Virginia General Assembly that would review why banks are calling loans on property owners who are making their monthly payments. The bill also sought to limit the deficiency judgments that could be made against borrowers following a foreclosure sale.

Linda Worrell and Jud Honaker of the Silver Cos. worked with Sen. Richard H. Stuart to propose a bill that would require the Bureau of Financial Institutions to review issues relating to development loan defaults. The Bureau would study why banks are calling loans where payments are being made, and whether the actions are caused by federal regulations and pressure. The bill also sought to limit the maximum deficiency that a borrower could face after foreclosure to the difference between the amount of the loan balance and the appraised value of the property. That would give banks an incentive to sell the property at appraised values rather than firesale prices, developers say. 

Stuart introduced the bill, SJ 400, in the Senate, but it was killed in a Senate Rules subcomittee. Stuart said the banking community lobbied against it.

Since this article ran earlier this week about a local roofing company that was making its loan payments but was unable to work out a loan extension, I have received several phone calls and e-mails from developers saying this is far from an isolated case, and that many local business people have had their loans called despite making the payments. That can ruin the borrower and leave the bank with the property and no monthly payments.

“Banks are actually creating problems that don’t exist,” said Honaker, Silver’s president of commercial development.

“As long as we have this, it’s going to be difficult to recover from this recession,” Stuart told my colleague Chelyen Davis.

I spoke today with Bruce Whitehurst, president of the Virginia Bankers Association, about the situation. He said bankers typically want to work out loan terms, but sometimes they may seek to reduce an institution’s risk in certain lending areas. He said there are many definitions to what constitutes a performing loan — including whether payments are being made, a borrower’s net worth, available cash flow, the ratio of the amount of the loan to the value of the property, sufficient collateral and more. In this economy, often times property values have fallen and cash flows are down, meaning many commercial loans are considered non-performing even when all payments are being made. Banks keeping these types of loans on the books take a hit to earnings and must set aside more reserves — which leads to less future lending.

“It’s not fun on either side,” Whitehurst said. “It’s just unfortunately part of the economic environment we’re in.”

I’ll have a more-developed article on this topic next week, which also marks the start of a new Small Business Administration program that could help some commercial projects refinance their loans. Click here to read more about that. REDCO is handling those loans locally.


  • LarryG

    So are the businessmen having their loans pulled back in support of the big bad Obama big-govt rescue?

    Are they going to support Obama now that he’s using govt to help them?