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Commercial Real Estate Loan Workout, Forbearance, and Deed in Lieu of Foreclosure Toolkit (National and Select States)
Practical Law Toolkit w-038-1199 (Approx. 9 pages)
Commercial Real Estate Loan Workout, Forbearance, and Deed in Lieu of Foreclosure Toolkit (National and Select States)
by Practical Law Real Estate
| Maintained • ExpandCalifornia, Florida, Georgia...Illinois, Massachusetts, New Jersey, New York, Ohio, Pennsylvania, Texas, USA (National/Federal) |
A compilation of resources with guidance for commercial real estate lenders, borrowers, and their counsel when pursuing a loan workout as an alternative to foreclosure.
A lender generally has two options when faced with a commercial mortgage loan default. It may either enforce the loan using the remedies reserved to the lender under the loan documents (to the extent those remedies are permitted under applicable state law (see Rights and Remedies Under State Law. Alternatively, the lender may agree to temporarily and conditionally forbear loan enforcement to give the parties time to seek an alternative to foreclosure, see Forbearance. This voluntary, post-default negotiation process is commonly referred to as a loan workout. For an overview and general discussion of loan workouts, see Practice Note, Commercial Real Estate Loans: Workouts.
Stages of a Loan Workout
Loan workouts are roughly divided into three stages:
- Memorializing the loan default and analyzing available options under the loan documents and applicable state law (see Workout Analysis).
- Negotiating a temporary forbearance agreement, including a pre-negotiation letter agreement that sets deadlines and conditions on the workout negotiations (see Forbearance During Workout Negotiations).
- Ending forbearance. Forbearance can end in several ways, such as if:
- the borrower defaults under the forbearance agreement (or further defaults under the loan documents) in which event the lender may proceed with foreclosure (see Commercial Foreclosure Toolkit (Select States));
- the borrower cures the default and resumes performance or finds a takeout purchaser that satisfies all covenants and conditions of transfer and repayment under the forbearance agreement and loan documents;
- the parties agree to restructure and modify the loan (see Commercial Real Estate Loan Modifications Toolkit (National and Select States)); or
- the borrower delivers a deed-in-lieu of foreclosure permitting a swift and orderly transfer of the property (see Deed in Lieu of Foreclosure).
Workout Analysis
Rights and Remedies Under State Law
Practice Notes
For a compilation of resources that provide due diligence guidance relative to examining the property condition or the borrower's structure relative to the workout, see Commercial Loan Due Diligence Toolkit.