With defaults in commercial mortgage-backed securities expected to hit 11 % by year's end, CMBS special servicers are inundated with requests for modifications, extensions and discounted payoffs. Whether loans are in distress due to the market downturn or the reduced refinancing options caused by new underwriting guidelines, the maze of special servicing directives is difficult to maneuver because all special servicers have their own particular procedures and objectives for handling distressed loans. In many instances, in fact, the special servicer may actually not be the directing certificate holder.

But we have come to find one consistent trend: generally, the special servicer needs to do what's in the best interest of the trust or bondholders within the REMIC. It's important, therefore, that borrowers understand this when they begin the modification process.

We're actively involved with CMBS modifications, discounted payoffs and extensions, and we have come to understand two significant requirements: borrowers need to operate in good faith, and special servicers need to look for short-term solutions that have long-term benefits.