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Our attorneys are trained to draft "state of the art" modification agreements.
Loan Modification and Forbearance Agreements
Rosenberg Martin Greenberg attorneys understand what it means to prepare loan modifications and forbearance agreements from the lender’s perspective. Choosing the wrong agreement could cause problems for the lender. In general, loan modifications tend to be the preferred course of action when there are no serious defaults by the borrower. Our attorneys will explain the differences between the two types of agreements. Our experience allows us to advise the lender on a case by case basis as to whether a modification or forbearance agreement is the preferred approach and then prepare the appropriate documents in a cost-effective manner. Our attorneys monitor the marketplace so that our forms are current, based on current judicial opinions, statutory changes, and best practices.
Legal complexities of loan modification and forbearance agreements
Loan modification and forbearance agreements can pose serious risks and complexities for lenders. Market conditions or specific borrower circumstances may change in such a way as to significantly lessen the likelihood of adherence to the agreement's initial terms. When this happens, a lender may determine that it is in its best interest to provide the borrower with some additional flexibility.
When it comes to the ongoing relationships between borrowers and lenders, there are times when forbearance or other modifications of loan terms are necessary to further the interests of both parties. For example, even when there is a serious default by the borrower, a modification or forbearance agreement may be the preferred course of action rather than demanding payment if there are material loan document deficiencies. Rosenberg Martin Greenberg provides lenders with guidance, insights and safeguards designed to facilitate mutually acceptable solutions.
Particularly in the case of real property financing scenarios, when valuation issues make it less likely that a lender will be able to sufficiently recover its losses should foreclosure proceedings be initiated, forbearance agreements may be preferable to more aggressive action by the lender. By restructuring debts of this type, lenders can take advantage of the possibility that once market conditions improve, borrower cash flows will increase and their initial investment will bear fruit.
Additional considerations pertaining to forbearance agreements
Lenders must ensure that the terms of additional financing are clearly delineated as part of the forbearance agreement:
- Payment of default interest: Any workout or forbearance agreement needs to address the right to default interest that the lender likely already has accrued, whether it will be exercised during the forbearance period and under what terms.
- Forbearance fees: The collection of forbearance fees is often used to defray the extra expenses to a lender in monitoring a loan
- Supplemental borrower reporting: Lenders who have consented to an adjustment of initial loan terms may wish to receive financial reporting from the borrower in excess of what the original agreement would have required.
- Loan security measures: Anytime a forbearance or change in loan terms is requested, it makes good sense for a lender to undertake a careful review of the security or collateral contained in the initial agreement.
Protection for lenders against bankruptcy risks
In outlining the terms of a forbearance or loan modification, it is wise for lenders to seek additional assurances and safety measures meant to protect their interests in the event of a bankruptcy filing by the borrower. These could include:
- Borrower waiver of protection from the automatic stay
- Guarantees by sponsors or principals of the borrower that would be immediately triggered by a bankruptcy filing
- Friendly foreclosure covenants
- Releases by borrower
Loan modification, workout and forbearance drafting assistance on behalf of lenders
At Rosenberg Martin Greenberg, we are committed to providing lenders with insights in a wide array of workout and forbearance contexts. We understand that no two financing relationships are the same and that a customized approach is vital to our clients' success. Our team of professionals will conduct a comprehensive review of existing agreements and lender priorities in order to draft documents that are fully in keeping with statutory requirements and limitations, the latest judicial guidance and industry best practices.
Lenders in Virginia, Maryland, the District of Columbia, Delaware, Virginia and West Virginia are invited to contact an RMG loan modification attorney for legal consultation in this matters.
Loan Modification and Forbearance Agreements Team
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