What is a special servicer in real estate finance?

What is a Special Servicer?

In real estate, a special servicer refers to a company or entity that is appointed to handle the servicing of a mortgage loan that has gone into default or is at a high risk of default. These servicers specialize in dealing with distressed or non-performing loans, especially in the commercial real estate sector. Their primary responsibilities include working out problematic loans, restructuring debt, managing foreclosure processes, and disposing of the property if necessary.

Special servicers are integral to the structure of commercial mortgage-backed securities (CMBS), where loans are pooled together and securitized. In the CMBS framework, the special servicer helps maximize recoveries on defaulted loans for the bondholders, by either rehabilitating the loan and returning it to performing status or by liquidating the underlying property in a manner that seeks to preserve value. They have expertise in dealing with complex real estate negotiations and legal proceedings, which are often necessary when handling distressed assets.

A special servicer is distinct from a Master Servicer, which is responsible for the loan administration when it is not in default or at risk of being in default.

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