Ami Magazine: Preventing Mortgage Foreclosure
A Conversation with Restructuring Veteran Shlomo Chopp
By Rabbi Yitzchok Frankfurter
Originally published in Ami Business Magazine
Tell me about your business. It seems to have two sides—helping others with real estate challenges and running your own real estate company. How do those fit together?
The investment side is really secondary. We do some of it, but we’re not out chasing deals. Our main focus is helping property owners who are struggling with their loans. We start by understanding their obligations and identifying any leverage they have with their lenders, then we work toward a solution. Our goal is to show the lenders that the owner is part of the solution, not the problem. We come in, clear up misunderstandings, fix communication breakdowns, and help get the property back on solid footing under a new loan structure. It’s a lot of educating, guiding and convincing.
There are a lot of angles to what you just said. Let’s start with the first step: analyzing the mortgage documents.
That’s right, and it’s a deep process. We’re not doing a legal review in the traditional sense. Most borrowers think that as long as they make their monthly payments on time, everything will be fine. But modern loan documents, whether it’s a large, sophisticated loan or even a small local bank loan, are far more complex than most realize. The problem is that borrowers rarely take the time to truly understand them. The lender is an expert in running the property, but the attorney is an expert in legal language, and they rarely sit down together to discuss how a clause will affect day-to-day operations.
So you’ll have a clause that might directly impact how you collect rent or pay expenses, yet it’s often glossed over. And when problems arise, the borrower assumes the lender is being unreasonable without realizing they already agreed to terms that now give the lender the upper hand.
So you’re not necessarily talking about loans that are in default because of lack of payment. They may be in default because of some technicalities.
Exactly. It often starts with something technical. The borrower thinks everything is fine because they don’t realize the loan documents clearly state that this “technicality” is actually a violation. When they do find out, their reaction is often, “Why is the lender being so unreasonable? I’ve never missed a payment!” without understanding the lender’s reasoning. Then they might hire an attorney to fight it and decide to withhold mortgage payments as leverage, and suddenly it has gone from a minor issue to a full-blown default. The truth is that a lender isn’t going to lose sleep over one borrower not paying a single mortgage. Meanwhile, the borrower can spiral from the excitement of closing a deal to confusion over what’s happening, and ultimately to losing the property—and all because of a missed clause, knowledge, focus and diligence.
Can you give an example of a technical matter that can cause someone to be in default even though they’ve been paying their mortgage on time?
Let’s discuss one that has become very prevalent, which is known as a lockbox. Usually, when a lender makes a loan, you give them the property as collateral—that’s why they’re giving you the loan. You have the note, which is the promise to repay, and the mortgage, which ties the property to the note so the lender can foreclose if you don’t pay.
But in commercial mortgages, there’s often an additional layer most borrowers don’t think about: the assignment of leases and rents. That means you’re not only giving the lender the property, you’re also giving them the rights to all leases, rents, and essentially all the income the property generates. In other words, they control everything the property owns and everything the company that owns the property owns.
The lender lets you keep using that income as long as you’re not in default. Meaning, not only is the property collateral but so is your bank account for the property and your lease with the tenant.
It’s very different from foreclosing on a building. To take the building, the lender has to go through the courts in a foreclosure process. With rents, it’s instant. Once you’re in default, you lose access to that income.
To make it even tighter, many lenders now use what’s called a lockbox. All rent payments from tenants go into a special account that’s jointly controlled by the lender and the borrower. If the lender declares a default, even a technical one, they can immediately block your access to that money.
Is that put into effect from the get-go?
Sometimes. In some cases, it’s established later due to issues at the property.
The challenge is that with a lockbox controlled by both borrower and lender, the lender may act aggressively, trying to keep as much money in the account as possible. This creates real fear among borrowers that they won’t be able to access their funds once the lockbox is in place.
Because of that fear, some borrowers refuse to agree to a lockbox, which can escalate the situation. Without a lockbox, the lender may require the loan to be personally guaranteed. So what started as a non-recourse loan can quickly become personally guaranteed, increasing the borrower’s risk significantly.
In other words, the lender can seek not only foreclosure on a property but also any deficiencies from the borrower.
Correct. The point is that they’re now risking everything, or at least risking default, just because they’re afraid of this lockbox, which is just one of the possible issues. This fear can lead borrowers to try to outsmart their lenders by withholding information about what’s happening at the property.
Sometimes that is possible because the lender isn’t living at the property. He has to either trust or not trust that the borrower is giving him all the information. But if the borrower is not giving all the info, even withholding just a little, and even if they might not end up losing in a court of law, they’re creating an enemy of their lender. This breakdown can be not only a communication breakdown, a PR breakdown and a relationship breakdown, but it can lead to a default and potentially trigger a recourse directly to the borrower. Depending on the loan terms, this can have significant implications for the person’s entire portfolio and livelihood.
What I’m saying is that this fear of the lockbox causes borrowers to avoid it proactively or resist it reactively. Properties that might have been stable start to decline because the borrower stops putting in funds, the lender withholds money, and both sides escalate the conflict. The borrower protests, “Look at the property, it’s deteriorating!” The lender responds, “I don’t trust you. Maybe you’re pocketing the money.”
This is a fundamental misunderstanding that could be avoided if the borrower had taken the time, with menuchas hanefesh and the right attorney, to fully understand the loan documents from the start. Many attorneys draft these documents but aren’t qualified.
If the borrower had sat down with a knowledgeable attorney and their head of property management on day one to map out, “Here’s what you need to do from day one, here’s what happens on day two,” it would have made a huge difference.
Back in the day, our parents could manage properties by collecting rents, paying expenses and mixing property funds with personal accounts, and that was fine. Today, it’s very different. You’re beholden to your loan, and that relationship touches every aspect of your property management.
To clarify, we’re talking about loans for multifamily, commercial and office buildings; we aren’t talking about private homes, correct?
Private homes are a totally different discussion. I don’t deal with that.
You mentioned that certain occurrences on the property could require a lockbox. Can you give an example?
There are several triggers, some simple, some complex. One common example is a covenant in the loan documents requiring your net income to be at least 25% higher than your mortgage payments—a debt service coverage ratio, or DSCR, of 1.25. In other words, they require a 25% buffer.
If the property’s income drops below that 1.25 threshold, the lockbox can be activated. From that point, you only receive enough funds to cover necessary expenses; the lender holds onto the rest until the property’s income recovers above that level.
And that can drop because of tenants moving out, expenses increasing or the debt service (interest rate) rising.
Debt service usually only rises if the loan has a floating interest rate. But I’ll give you an example that a lot of people are dealing with right now: Walgreens was once seen as a top-tier tenant. These were single-tenant properties, usually on the corner of a great intersection, and they had a great credit rating. A lot of the loan documents for those buildings stated that if Walgreens’ credit rating is downgraded, a lockbox would be triggered. There are a lot of people who made these deals five years ago and thought they were making a great investment. They were going to make 7-8% a year on 15-20 years of rent, and they were going to get back their money plus profits, and then they would have the property even if Walgreens were to leave. But then the market changed, Walgreens started suffering, and then they announced that they’re going private, which caused their credit rating to be downgraded. Now, these investors see no cash flow because the lockbox kicked in. Plus, property values have fallen sharply due to the downgraded tenant credit. So you can end up with a property worth less than the debt, as well as no monthly income. That’s a huge issue for people, and for some, the second there’s an issue, they want to give the property back to the lender, which is another fallacy, because the lender doesn’t actually want it. But that’s a whole different story.
The borrower may not even be aware that the lockbox was triggered, correct?
Absolutely. One day they think they’re going to make a distribution to the investors, and the next day the lender says, “There’s a lockbox here, so you can’t take out any money. If you take any money, we’re going to come after you for it.” They’re shocked, and the first thing they want to do is hire an attorney and fight. They don’t realize that it’s a losing argument.
Are most courts in favor of enforcing the documents to the letter against the borrower?
Yes. Some attorneys advertise themselves as aggressively pro-borrower, but in my experience, that rarely ends up benefiting the borrower. First, you usually lose because in the US when you borrow money, you have to pay it back. Second, if you fight aggressively, you might be on the hook for the lender’s legal costs. Third, you could get blacklisted as a borrower or even trigger recourse through litigation.
Let’s look at that scenario. Your tenant has been downgraded, which triggers a lockbox, and then the borrower suddenly gets a notice about the lockbox. If they try to violate that, it goes from non-recourse to recourse.
It can go from non-recourse to recourse. Complex loans such as CMBS (commercial mortgage-backed securities) are heavily negotiated down to every comma and conjunction. But generally, refusing to cooperate on a lockbox can trigger recourse. That could mean the lender seeks losses only from that event, or they could go after the entire loan balance.
So as I understand it, the biggest problem isn’t usually that borrowers can’t pay their mortgage because of market changes or tenant loss; rather, it’s issues with the lockbox that get them into trouble.
I wouldn’t say it’s the most common problem, but it’s definitely the worst one to have. When market conditions cause trouble, you can usually negotiate with lenders to strike a deal. But when you are the problem, meaning you don’t understand your loan documents or fail to act in a way that reassures the lender, they won’t want to work with you.
The lender will think, “Let’s just foreclose and call it a day.” On the other hand, if you’ve managed the property well and followed your loan documents closely, even if the market dips, you can convince the lender, “We’re in the same market. I can offer you more value by working with me than by foreclosing.”
That’s why I offer two types of services. One is loan workouts, mainly for borrowers who are sophisticated or have kept everything in order and need to negotiate a market-based deal instead of facing foreclosure. It’s a costly process but often necessary.
The other service is what we call Pre-Workout and Small Balance. This helps borrowers who don’t fully understand their loan documents or don’t have a solid pro forma to present to lenders.
For example, the borrower says, “I have a problem.” The lender responds, “What do you want me to do?” The borrower says, “I don’t know, what can you do for me?” And the lender replies, “I’m the lender. You have to pay me back. Tell me your plan.” But without a pro forma or a clear understanding of their property’s financials, the borrower can’t offer a credible proposal.
When the lender pushes back with counteroffers, then you have something to negotiate. This is a lower-cost service we provide for smaller loans and newer investors who entered the market in the last decade, many of whom are now facing challenges after aggressive buying sprees with investor money.
You’re always representing borrowers. But at times, it’s also in the lender’s best interests to strike a deal with the borrower.
That’s absolutely correct. But most borrowers don’t know how to explain to the lender why it’s in their best interests to do it.
I imagine that you’re very busy right now because of the market change for multifamily and office buildings in the city of New York.
It’s actually happening across the country, and it’s not just multifamily and office. Multifamily in New York City has a structural issue. Office has a market issue with regards to a lot of space that is not ideally suitable for the next-generation office.
What do you mean by a structural issue for the multifamily buildings?
The new regulations. That’s a huge issue. We don’t know what’s going to happen in the future, and if Mamdani is elected, he’s going to try to cause further issues. The value of multifamily buildings in New York City has suffered dramatically, although some may argue that it had been artificially inflated for a long time.
But this ties into wider problems across asset classes like retail, industrial and hotels. The core issue is interest rates. When rates are low, borrowing is cheap and capital is easy to come by.
Because money was so available, people overpaid for properties—often properties that weren’t the best investments. Now, distress is showing across all asset classes.
Most of our work is with office buildings, especially larger loans, but mixed-use complexes also face challenges. The problems span the whole market.
Are there more problems with office building loans than strip malls?
Generally, yes. Strip malls have held up fairly well, despite some issues from tariffs and an economic slowdown. Offices, however, are struggling because many tenants have downsized or are making do with less space.
At the same time, inflation and increased supply mean that it costs more to build out tenant spaces, but rents haven’t risen accordingly. Tenants have leverage. They can shop around and demand incentives to pick your space.
What we’re seeing is what we call a bifurcation: the best office properties are doing well (though not as well as before), the worst ones are dropping out of circulation or being eyed for conversion or demolition, and the rest are somewhere in the middle.
Even if a borrower’s property is performing, if their loan was sized based on prior, higher property values, it’s often too large to be serviced or paid off in today’s changed market conditions.
The property has now depreciated to nine million dollars. So even if the bank forecloses, they have a gap of a million dollars that they can’t recover. What’s your approach in that situation?
The first step is to show the lender that the borrower has done everything possible and has actually outperformed comparable properties in the area. You want the lender to see this borrower as someone who maximizes value on their collateral. If you can’t convince the lender of that, they’ll assume part of the property’s decline is due to poor management. They will think, “Yes, it’s a tough market, but if he managed it better, maybe it’d only be $100,000 underwater instead of $1 million.” So the initial message is: the borrower is not the problem but part of the solution. Next, I explain how the property can be improved further. It’s not enough to say, “I’m a good guy.” You need to say, “Here’s what I’m going to do to make things better.” Lenders on distressed properties aren’t trying to make money; they’re focused on recovery and loss mitigation.
When you bring a plan, you have to prove it. The lender’s loan officer isn’t going to visit the property for months or even just weeks to come to the same conclusions as the borrower. Instead, they’ll hire a broker and an appraiser to provide valuations and due diligence.
That means you need to provide solid comparables, letters of opinion, and educate the appraiser and broker. Communication is critical. You can’t clam up. You have to overcommunicate. Because if you think you have some leverage over your lender by not giving information, I have news for you: If you don’t present yourself as the guy who knows everything more than everyone else, they have no use for you. They have your collateral already.
Once you’ve armed the bank’s team with this information and shown you’re actively working to solve the problem, you build trust. The loan officer will start seeing you as the person to rely on moving forward, despite the current property value.
Now comes the most important part: You need to convince the Lender, that your plan is better than their alternative, which is foreclosing and either managing or auctioning the property.
For example, you might say: “If you reduce the loan to $8.5 million, which is below your $9 million valuation but reflects cash flow realities, I’ll commit $1 million of my own money to renovate the parking lot and attract new tenants. Then, one of two things is going to happen. Either I won’t be successful, and you’re going to have $9.5 million, which is the real value plus my million dollars, or you’re going to have $8.5 million plus the new tenants I put in there, which is going to raise the value of the property. Then if interest rates go down and/or market rates go up, you can possibly recover all of your money.”
You’re showing skin in the game and offering the lender something they wouldn’t get in a fire sale scenario, where the property might fetch only $8 million after months under a receiver, with tenant issues and property deterioration. Instead, you’re proposing to manage, invest in and improve the asset for their benefit.
You’re saying that they may be able to recoup everything, but part of such a deal would be that they would lower the debt from $10 million to $8.5 million, so they’ve already taken a significant loss.
The goal is that eventually if the property performs well, the lender can recover more of their money.
So the $1.5 million isn’t forgiven.
It could be forgiven if the property doesn’t end up bouncing back, but if the property does go up in value, they can gain from it. That’s a partnership. The borrower is basically saying, “The market did a very bad thing to both me and you; we’re partners in this.”
I’m assuming that the uphill battle you have is that you aren’t working with the lender, you’re working with some guy who is working in the office and may not be a very sophisticated individual. And I assume that you have different experiences in different institutions, where in some you may never get to speak to the guy who has the real knowhow in real estate.
That’s a common perception, but usually it’s not the reality. The person you’re dealing with is responsible for resolving these problems and presenting them to the committee. They may be junior, but it’s your job to work with them and figure it out.
It’s easy to label that person as “the bad guy,” but even if you’re right, you still lost your property. So you have to find a way to work with whoever you’re dealing with.
When I started in 2010, I knew nothing about loan workouts. But I studied the governing documents like a Gemara, talked to lawyers and figured it out. When you have millions at risk, it’s your responsibility to figure it out too, either on your own or by hiring an expert. Blaming the lender's representative for being unreasonable isn’t an excuse.
I’d like to add a very important point: There’s no such thing as “let me try, see what happens, and then I’ll go and hire someone.” When you go in and try to work it out on your own and fail, you might as well kiss it goodbye. First impressions matter, and you don’t get a second chance.
As a borrower, if you see trouble coming four or five months ahead, it’s crucial to consult an expert. You have to understand what you don’t know. To paraphrase Donald Rumsfeld, you have to learn “the unknown unknowns.” You might be great at operating properties, but you might not know how to position yourself as the best candidate for a financially feasible loan workout.
Most borrowers believe that a workout professional just has connections. But the truth is, there couldn’t be a bigger fallacy. It’s not about connections. In fact, the borrower is the one with the connections since the lender is calling them to collect the loan. You already have as good of a connection as you’re going to get. The question is what you’re going to do with that connection. If you think that somehow Shlomo Chopp knows the lender’s CEO and is going to make a phone call for a borrower who hasn’t followed his loan documents and say, “Do me a favor. Please look away from your rights and give him something,” I can assure you that won’t happen. It would make me look bad, and the CEO would just laugh.
The key here is to understand what’s going on. Then you need to pick a path and go with it. You can take the aggressive lawyer approach, but that usually makes negotiations unpleasant, and lawyers can only do so much to prevent foreclosure.
Or you can take the adviser approach, which I believe is best, but be sure your adviser has the right skills. A lot of advisers don’t have the knowledge or strategic thought process, so you have to make sure you have the right one.
You could try to go it alone, but unless you’re really sophisticated, know how to deal with lenders and understand your loan documents inside out, I think that would be a really big mistake.
A lot of the workouts can be helped by certain legal action, including getting a legal analysis of the loan documents. Is there ever a point where you work with attorneys and get one involved because it might be better to file for bankruptcy and work things out there, since bankruptcy court is where deals are made?
I’ll address bankruptcy shortly. Regarding attorneys, we have one on staff, but he doesn’t act as a traditional lawyer since we’re not a law firm. We have a deep understanding of loan documents, sometimes more than lawyers do.
However, we always collaborate with the borrower’s attorney. We interpret how legal terms apply to operations and work with the borrower’s lawyer to highlight concerns so they can advise on the best next steps.
Now, regarding bankruptcy, it’s a very dangerous game. Its purpose is to ensure that the bankruptcy estate, the value that’s left in the entity, is distributed to each party in accordance with their respective rights. This means that if you have a first position secured loan, such as a mortgage on a property, that one gets first. So if the loan is underwater, it’s going to be liquidated underwater.
I’m not a bankruptcy attorney, but I advise bankruptcy courts, and generally, when you are in bankruptcy and your senior position is underwater, you are not eligible to receive any benefit from the estate unless you can work out what’s called a plan, which is probably going to require the consent of the first position—the mortgage. Bankruptcy can also be painful for creditors because foreclosure outside court is relatively quick, whereas bankruptcy can delay foreclosure for up to two years or more.
Earlier, I mentioned the importance of proving to lenders that your deal is better than their alternative. Using bankruptcy leverages extreme pressure on lenders to negotiate. But here’s the danger, which many don’t realize:
In almost every case, a non-recourse loan becomes recourse if the borrower files bankruptcy, or even if someone files on the borrower’s behalf with their consent. So if you have a $10 million loan now worth $8 million, normally the lender can only recover the property. But if you file bankruptcy, that $2 million shortfall can become your personal liability in post-bankruptcy litigation.
So, is it your opinion that bankruptcy should not be exercised at all, or that it should only be used with caution?
I don’t mean to be crass, but bankruptcy is like chemotherapy. It’s sometimes necessary, but it’s very dangerous. You need to be extremely careful when and how you use it. You can’t just listen to a bankruptcy lawyer. You need to consult a business adviser, your transactional attorney and other experts to fully understand your potential downsides and upsides. You have to make sure the risks you’re taking are worth the possible benefits. Only then does it make sense to consider bankruptcy.
If you have a full recourse loan and can’t get anywhere with your lender, bankruptcy may be your last resort, keeping in mind that the costs will likely be passed on to you eventually.
At what point does a person need to realize that he has to reach out for professional help? When a person has a physical illness, they have symptoms that cause them to go to the doctor. What are the symptoms that a person should notice in his property to seek professional help? I assume that most people are in denial.
That’s correct. The moment you notice distress signals, you should reach out for advice. These signs can manifest as significant and sustained drops in cash flow that may continue to worsen, a tenant lease coming up for expiration without any traction in finding a new tenant, unresolved property issues affecting day-to-day operations, or an upcoming loan maturity date. Remember, commercial loans typically mature every five to ten years, unlike the 30-year terms common in residential mortgages.
Regardless of what it is, whenever you see that there’s a problem coming with no apparent solution on the horizon, you need to reach out to a professional and have a conversation. You have to say, “This is what’s going on. At what point should I take action given these circumstances?”
What I typically do is ask the borrower questions. If someone calls me about a tenant building, I'm going to ask about their expenses and ask if there's a way that they can perhaps reduce taxes. I was once driving down Avenue K in Brooklyn when I saw a truck stuck under the overpass, and it had sheared off a portion of the top of the truck. I was wondering how it would get out, and I noticed that they were letting air out of the tires. There are times when you have to look for creative ways to make something work. You have the conversation, you discuss what you see as being the problem, and you deal with it ahead of time so that you have enough time to prepare your investors, prepare a plan and know what to say on that first call with your lender, as opposed to saying something that you’ll come to regret later if only you knew. Again, don’t shy away from having that conversation, and the earlier the better.
What do you feel you bring to the table that’s unique?
As far as I know, there’s no other entity offering the comprehensive services we provide. While there are professionals known as chief restructuring officers or workout specialists who often take a hardball approach with lenders, sometimes even pushing for bankruptcy, we take a different path. For example, we work closely with a three-year banker who has done asset management for major banks. Together, we conduct an in-depth diligence process on the property.
We look for any issues the lender might uncover that could be used against the borrower, but we also identify angles to demonstrate to the lender that even under their best-case scenario, he will still face challenges, and crucially, how the borrower plans to solve them. This allows us to craft a well-grounded business plan as part of a proposal.
The most important part of what we do is the due diligence. By the time we finish, we understand the property as if we’re potential buyers. We then present this business plan to the borrowers and work closely with them. Next, we shift perspective to the lender’s side. We learn their loan structure, their motivations and what they aim to achieve.
For instance, some loan servicers—the lender’s representative—focus solely on cash recovery, so they may operate the property as a slum just to extract cash because that’s their job. Their job isn’t to improve the property. If that’s their approach, we tailor our pitch accordingly. If they aim to maximize the property’s value, we present a different case. Local banks might require a strategy focused on lowering appraisals; other banks might resist taking losses on their books, so we adjust our approach once again.
If the question isn’t just whether the property’s value is down but whether the property is in default, we try to keep it performing as long as possible. Once we have a clear understanding of the lender’s concerns, the borrower’s situation and the property’s realities, we navigate the maze to find the best path forward.
We handle negotiations with lenders outside of court, and we’re also retained by some of the largest international litigation firms to assist clients already in litigation. We mediate between limited partners and general partners, resolving governance issues like lack of communication or mismanagement of funds. We restructure agreements to restore limited partners’ confidence, making them comfortable with investing additional capital.
All of this is part of our holistic approach. We essentially become asset managers, working not just to secure a deal with the lender but to ensure that deal positions the borrower for sustainable success. Our goal is to help borrowers move forward profitably, at least on the new investment, and hopefully recover some of their prior losses.
How many people do you have working in the company?
There are five of us in the office and a couple more who work remotely. I lead the strategy and handle much of the business development because borrowers want to speak directly with me. They know who I am and value my opinion, and many of our ideas come from what I hear from them. We have John Lindenthal, who manages diligence and asset management; Amir Kornblum, who works on the workout side. He’s an attorney but doesn’t practice law here; Cooper Lopez is our analyst, and then a few others support various parts of the business. Our focus is helping borrowers, and thank G-d, we’re growing rapidly. We have a lot going on and hope to keep expanding our impact.
Your background is real estate. How did you get involved in this?
I started in business in 2003, working for Ira Zlotowitz selling real estate software. That gave me access to many brokerage firms and helped me understand how their business works. Eventually, I asked myself, “Why sell a $5,000 software package when I can do what they’re doing?” So, I began buying and selling real estate deals. It was exciting, but when the market declined between 2008 and 2010, I found myself a bit lost.
At the time, Amir Kornblum, who was my attorney and then worked in-house at Citibank, suggested I look into CMBS (commercial mortgage-backed securities), a complex loan structure. I downloaded the documents and started learning everything about it. I developed an approach that helped me navigate these loans.
I worked on loans ranging from $3 million to $15 million and eventually managed about $150 million worth of loans. Toward the end, I negotiated a deal for a client at 60 cents on the dollar in a very complicated situation, and I had to litigate for my fee until 2021. It took me seven years to see my money.
But by around 2017 there were no more workouts to do, so I partnered with my friend Berish Rabinowitz at Superior Realty, and we started buying properties together. I also developed an interest in retail because of e-commerce and now hold four patents related to that field. Then, in 2020, I got a call from someone needing help because of COVID, which brought me back into this line of work. Since then, I’ve been able to assist many people and am making investments in distressed areas. We’re applying the lessons learned from the last major downturn to today’s market.
Would you ever consider purchasing a distressed asset from a client and taking over that burden and resolving it yourself?
No. I’m very careful about conflicts of interest because it’s not worth risking my business over even one fight. I do buy loans in the bond market behind properties—I do some creative and interesting things—but I never get involved as an investor in my clients’ deals. If I did, I wouldn’t be looking out for them; I’d be focused on what works best for me.
Borrowers often want to get more aggressive than I’m comfortable with, and I’m happy to follow their lead. There are plenty of investors out there, so when I work on a loan, I don’t invest in it or view it as a potential investment. I don’t even like bringing them mortgages or other money; I tell them to go to their brokers, because I like supporting the brokers. The brokers bring me business, and I’m not here to compete with them. I have my business, and everything is good, baruch Hashem. Let them make their money.
It would seem that part of your position would be to educate people to make “healthy visits” to the “doctor” instead of just “sick visits.” I think people should understand what their loans are and what they’re getting into before they even take out the loan. There should be some sort of educational process so that people know what to expect before any problems come up.
Absolutely. That’s exactly what our pre-workout and small loan balance service focuses on. Unlike our main workout service, which is expensive and requires a big retainer up-front, this service helps borrowers before problems arise.
We get calls from people taking new loans who want to understand how the loan terms relate to property operations. For example, if they have a tenant with questionable credit and the loan has a clause that triggers issues if the credit worsens, we’ll advise them not to agree to that clause. If there’s a reporting requirement, we help ensure their reports not only comply but also appear credible to the lender.
We charge a premium hourly rate, but overall it’s affordable compared to the costs of a full workout later on.
Now here’s something that’s a bit controversial. There have been a lot of issues in our community with people who have taken loans without understanding what they’re taking. There was an asifah that addressed being honest on your loan documents and so on. I’ve been trying very hard to set up a sit-down so I can explain that when you do have a problem or when you take out a loan, here’s what you should know. Because I get constant messages from random people asking me to please call them, and when I call and listen to them, I say, “I wish I could teach you everything on one foot, but I just can’t do it.”
So I want to create some type of forum or event. I don’t have the time to help people one on one and just do chesed all the time, although I do try to do it when I can.
There needs to be clear guidance not only on how to assess a rent roll and create NOIs (net operating incomes) to build a solid investment deck, but also on the technical aspects of your loan documents that require careful attention. When taking a loan, you must understand what the lender requires and what risks you need to insist on during negotiations. If the lender refuses to negotiate, the right response is to say, “Thank you, but I’m not taking this loan. I’d rather walk away than risk investing and potentially face serious issues.” Unfortunately, many people are only beginning to realize this now. Baruch Hashem, a few in the community are advocating for this awareness, but it’s still not widespread, and too often, people don’t care enough to address it until it’s too late.
You said that you take a retainer?
I do. I charge a monthly fee, which is drawn from the initial retainer. Then, if the workout is successful, I receive a bonus. For smaller loans, I charge by the hour instead.
What do you consider a small loan versus a large loan?
On the workout side, the average loan we handle is around $100 million, and we’ve worked on loans as large as $600 million. But we’ll also help with smaller loans, like a $2 million loan we recently worked on as a favor. On the pre-workout and small loan side, we’re happy to assist anyone. For example, if someone calls and says, “I have a $2 million loan, but I’m confused because the lender and my attorney are giving me conflicting advice,” that’s when we charge hourly and help them understand their position so they can talk to their lender effectively.
We share a lot of the insights I’ve given you during this conversation, tailored to their specific property and loan. It’s not cheap. It usually costs between $10,000 and $20,000, depending on complexity. Sometimes we create pro formas, sometimes we help draft a formal plan, and for many, it’s the first time they’re seeing flowcharts or financial models. Obviously, it can be less than $10,000 in simpler cases, but that’s the general range they expect. We also help connect them with the right attorney, which is critical. We work with attorneys who understand real estate negotiations, not those who think they can rewrite US law to avoid loan repayment.
On the workout side, you have not just an emotional incentive but also a financial incentive, because you’re getting that bonus.
Absolutely. The profits come from successfully modifying the loan for the borrower. Everything else mainly goes toward operating expenses.
Where are you from? I was born in Lakewood while my father was still learning in kollel. Later, we moved to Brooklyn, where I learned in Yagdil Torah and Torah Temimah, and then by Rav Chaim Epstein. Now I live in Monsey.
I guess that learning Torah also helps in a practical way because it builds your analytical mind.
It’s incredible how connecting two completely different sugyoscan train you to analyze loan documents and lender structures. You start noticing certain language and thinking, “What if we proposed this structure to help the lender?” That kind of insight jumps out at you. People shouldn’t underestimate the advantage their learning gives them, but you have to put in the work or it’s useless.
Where is your office?
We have an office near Monsey, and we also have one that moved to Downtown Manhattan.
I guess that it’s in the Financial District so that you can hop over to the banks.
Banks are mostly online now, but there are still people and institutions in the area. Most of our communication is over Zoom or phone, and many banks are located out of state.
Originally appeared in Ami Business Magazine, Issue 731 (August 2025).
Reprinted with permission.