There are more uncertainties than certainties regarding the outlook in response to the Corona Virus. We can assume that Defaults will rise. The managers at Yieldi having lived through the great recession learned many valuable and painful lessons in loan workouts and restructurings. A common tool for lenders with troubled loans is the forbearance agreement. Forbearance agreements accomplish many things for lenders. Forbearance agreements can help borrowers weather storms to catch up on payments. Any forbearance arrangement or loan modification is taken into consideration on a case by case basis.
Start by understanding your borrowers situation
All loan workouts, like any foreclosure or other legal proceeding, should begin with a thorough review of the loan file. The forbearance agreement is, first and foremost, an opportunity to fix or remedy any errors or oversights in the loan documents.
Make sure there are no outstanding taxes
You can run an online search to check this. You will want to add any unpaid taxes to the forbearance agreement.
Understand what you want to gain by giving the borrower time
The lender should always have predetermined goals. What are the expectations? Best case scenarios that the parties hope to achieve? Is the lender interested in continuing a lending relationship with this borrower? Is the liquidation of the collateral the goal or do you want to pursue a foreclosure and take back the asset? Is their a personal Guarantee? Are there environmental concerns? Are you in a judicial or non judicial foreclosure state?
What to include in your forbearance agreements:
At Yieldi we have a checklist of items to include in forbearance agreements:
- All of the existing loan notes obligations
- amount due or past due of security agreements
- past due taxes
- borrower should acknowledge an existing default under the loan documents.
- The forbearance agreement should provide terms.
- the payment schedule should be clearly defined and what happens in case of a default.