WORKOUT MEDIATION

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We provide the workout mediation services to the debtors and creditors.

Once the debtor/the borrower has defaulted on the real estate mortgage loan or business loan, a serious problem exists for all equity holders and lienholders on the property.  

Invariably, the borrower has already suffered equity loss and, with the commence of the default, the lender's asset loss materializes.

 The lender fundamentally has three courses of action:

- Foreclose and manage or liquidate the collateral

- Appoint a receiver with the applicable state court as the plaintiff

- Work the problem out with the borrower.

Similarly, the borrower has two basic courses of action:

- File bankruptcy

- Appoint the assignee/trustee to effectuate the Assignment for Benefits for Creditors (ABCs)

- Work the problem out with the lender.

 A lender at the crossroad of deciding whether to foreclose or work out a default must answer a fundamental question: Is the property under its current ownership potentially viable?  If it is, a workout may well be the best answer.  If it isn't, the property must be repossessed and sold. 

 A workout may be defined as a joint effort between a borrower and a lender to cure a loan default through strategic actions and negotiated compromise, as opposed to foreclosure and/ or bankruptcy proceedings. 

While a workout primarily concerns an adjustment in the financial relationship between the borrower and lender, the overall concept of the workout includes the owner's intensive efforts to increase income, cut expenses, and otherwise maximize the value and market positioning of the asset during whatsoever grade period the lender allowed.

Most importantly, lenders do not like the hassle and expense of foreclosing, nor do banks like adding to their REO department.

 If the potential for a turnaround does exist with the current borrower, compromises can be negotiated between the lender and the borrower to restructure the terms of the loan for given time periods.

The restructuring workouts can be:

- Cash flow mortgage, defers unpaid interest as negative amortization

- Debt service moratorium, defers debt service until some future event

- Interest rate reduction, lowers the debt service amount

- Principal reduction after appraisal

- The loan term can be lengthened

Although the Short Sale is not part of Workout alternatives, it can be negotiated with the creditor/lender's approval.

The workout in all cases should be officially documented in a "workout agreement" that sets forth all understandings, warranties, covenants, and legal documents.