Most types of loans require a collateral as a means to secure repayment. This collateral may be in the form of a car, a residential house or a commercial property. A commercial mortgage specifically requires as its collateral any of the following: a real estate and/or a building solely used for commercial purposes and not as residential properties. With this in line, borrowers who take this type of loan belong to the business group. The borrowers may be an incorporated business, a limited company or a partnership. As compared with the individual borrowers with residential mortgages, determining the creditworthiness of borrowers the commercial mortgage is definitely more complicated.

It is of common structure under this type of loan to make the mortgage ‘nonrecourse’. This simply means that the lender can legally seize the collateral in the event of non-payment, without further demanding from the borrower any remaining deficiency. The reason for this is that major laws disable creditors to go after the borrowers for their loans. Mortgages also provide a clause that permits lenders to immediately take possession of the collateral as these mortgages are to be sold as bonds and are given high priorities. Read the rest of this entry »