Loan Workouts

The managing partner of The Digital Financier (Gary Lewis Evans), has extensive experience in loan workouts. He gained this experience from working for more than 30 years in commercial and savings banks. This experience ranges from collector to asset manager. In this time he has experienced all levels of workouts ranging from collections on delinquent loans, repossessions, foreclosures, complex workouts, bankruptcy negotiations and legal coordination including court appearances.  

After years of work, Gary has developed a set of principals and rules that have resulted in many successful loan restructures and workouts.

In most cases, borrowers have good intentions. However, good intentions won’t make the loan payments. In loan workouts, the banker’s objective is to minimize the loss to the bank and resolve a bad situation as fast as possible.  It is fair to say that the courts favor the borrower and the courts will cause delays. 

The following 12 points are a quick overview of the process and objectives.

1. Act decisively and be firm

2. Hold client to promises and keep a watchful eye on the assets

3. Learn the history of the company and or property - review loan documentation

4. Understand your alternatives

5. Start developing an operating or liquidation plan sooner rather than later

6. Liquidate wisely, a smart liquidation is worth significant income

7. Negotiate hard

8. Document and keep good notes

9. Don’t forget - the delinquent customer is not your friend

10. Remember, the 1^st loss is often the best loss but don't let that inhibit strong negotiations

11. If a borrower wants various types of relief, seek additional or new collateral, especially if the borrower has provided a personal guarantee.

12. When a borrower requests a debt restructure, short sale or payment relief, the first step is to gather new financials, a new loan application and 2 years tax returns and a new credit report.  Underwrite as if you are processing a new loan.

 

Given the complexity of each unique borrower situation, the level of communication with the borrower and the borrower’s payment history, foreclosure or other legal remedies should be pursued.

Following are specific comments  unique to loan types.

The process for consumer loans workouts.

Consumers loans require a more aggressive contact schedule. It is common to make contact within days of the due date.

Follow up calls are scheduled based upon borrowers promises made as you talk with the customer. Call often and follow the law.

Call and or e-mail each delinquent borrower at least once per week in an effort to do the following:

1. Encourage payment

2. Obtain current information on their situation and why they are continuing to be delinquent.
3.  Be certain to track promises to pay and react swiftly to any failures to perform.

The process for business loan workouts.

The relationship or originating loan officer will often be involved.

This is the most complex workout because of the specific business dynamics.

Check your loan documents at the outset to better understand your legal rights.

The process for real estate loan  workouts

Make phone contact once the loan passes its grace period.  If possible, meet with the borrower as soon as feasible. It is a good sign if the borrower makes contact before the loan demonstrates distress. This is an opportunity for the parties to discuss ideas to remedy the situation before a potential troubled debt restructure is necessary.

Review all of the loan documents including the note, Trust Deed or mortgage, assignment of leases and rents, guarantees and security agreements. The purpose of document review is to determine the rights of the lender.

Written communication with the borrower should be carefully drafted to be certain that lenders rights are not being waived. Late or partial payments must generally be not accepted.  Work with your legal council throughout the process.

If the property securing the loan is an apartment building, commercial property or other property with tenants, you will want to receive a current rent-roll and operating statements.  

In addition, if the loan is secured by real property a review of the foreclosure procedures for the state and a date down of the title would be appropriate.

The parties may decide that the best alternative is to modify the terms of the loan.  Modifications may include some form of forgiveness such as a lower interest rate, an extension of time, or a period of interest only. For such forbearance equity participation, or a neg -am loan may be appropriate.

Vendors That I Have Had Good Success With

Nationwide Legal foreclosure and collection specialists

Weltman, Weinberg & Reis Co., L.P.A. Integrated Approach.  Recovery Solutions 175 S. Third Street, Suite 900 Columbus, Ohio  43215 (614) 857-4325 (614) 222-2193 (fax)

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Lexington Law - For those that need help improving their credit

American Bankruptcy Institute: The site is comprehensive, with a news section providing bankruptcy news headlines from newspapers, press releases and other sources, plus a bankruptcy library section, a section on legislative news, conferences, and a list of attorneys certified by ABBC. The site gives a glimpse of what's covered in the ABI Journal; however, you have to be an ABI member to see the full text of the journal articles. Other useful resources include an online newsletter called "Cracking the Code" and a new Judges' Chambers area. http://www.abiworld.org    

FHA Defaulted Mortgage Loan Sales (U.S. Department of Housing and Urban Development): This page describes the agencies defaulted loan sales program. http://www.hud.gov/homes/index.cfm

InterNet Bankruptcy Library: This site provides a list of links to other bankruptcy sites. These include Hot News in the Bankruptcy World, Internet Discussion Groups and Mailing Lists, Conferences and Meetings, the Troubled Company Prospector Supplement, Distressed Securities Data, and Bankruptcy and Insolvency Resource Materials. Bankruptcy Creditors Service and the Beard Group host the library. http://bankrupt.com   

LegalLink: This site calls itself a "one-stop resource" for bankruptcy and class action notices and case documents. The site is sponsored by Poorman Douglas Corp. and Huntington Legal Advertising . http://www.legallink.com/   

Turnarounds & Workouts: is a newsletter from InterNet Bankruptcy Library for people tracking distressed businesses in the United States and Canada.  Each issue features news articles, Publisher Christopher Beard's Column, Gnome de Plume, Who's Who in a significant bankruptcy case, case trackings and recent filings, a calendar of bankruptcy and insolvency conferences, and special reports on bankruptcy and insolvency professionals, including the annual Top Turnaround Firms and Largest Bankruptcy Law firms.  http://bankrupt.com/periodicals/tw.html         

New Generation Research: This web site provides a description of New Generation Research's products including the Turnaround Letter, The Bankruptcy DataSource, Troubled Company Prospector, and the Bankruptcy Yearbook & Almanac. The Yearbook provides bankruptcy statistics and useful information about corporate bankruptcies. http://www.turnarounds.com/    

Daily bankruptcy news:  Daily updates of significant new relating to bankruptcies. This can also be sent to you Palm Device. http://www.bankruptcydata.com/BankruptcyDataNewsNEW.asp   

BankruptcyData.com: The premier business bankruptcy resource on the web.   BankruptcyData.com provides instant access to information on thousands of business bankruptcy filings from federal bankruptcy districts.  Currently there are over 320,000 business bankruptcies in the database. http://www.bankruptcydata.com/         

The Distressed Company Alert: is a weekly newsletter that monitors and reports on companies that are showing signs of financial distress.  

Alerts are issued when a company indicates distress in one of the following categories:

Default
Financial Covenant Violations
Audit Concerns
Low Rating
Debt at Significant Discount
Preferred Dividend Omission
Miscellaneous

Bankruptcy Court Directory: The United States Federal Courts are organized in three levels.  The highest court is the Supreme Court of the United States.   Below the Supreme Court are the thirteen United States courts of appeal.  They are organized in eleven circuits comprised of groupings of U.S. states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, and the Northern Marian Islands. 

Below are links to the address and telephone numbers for the U.S. Federal Court system.  They are sorted by state for convenience.  Also included are significant recent and historical filings in each court.  http://www.bankruptcydata.com/Courts/Courts.htm          

Electronic Court Information Systems: The federal courts have a number of electronic public access systems available for bankruptcy practitioners, including Voice Case Information System (VCIS), modem-based Public Access to Court Electronic Records (PACER), the U.S. Party/Case Index (USPCI), Internet access to dockets (which sometimes includes document imaging) (PACER/RACER), and Electronic Case Filing (ECF).  The links below represent electronic access to the Bankruptcy Courts on the Internet.  http://www.bankruptcydata.com/Courts/Bankruptcy_PACER_Links.htm