The turmoil in the credit and real estate markets has caused an unprecedented number of real estate loans to default. Borrowers and lenders must engage in constructive dialog, called a loan workout, to resolve those sticky credit problems when easy and simple solutions are no longer available or have been exhausted. Cranewoods has experience working through those complex issues and can bring objective and creative solutions to the workout and help you save time, energy and your capital.
Real estate loan workouts are often an intricate process but one of the most successful ways of avoiding further problems down the line. When the need for a loan workout seems imminent, Cranewoods can help you prepare the materials necessary and guide you through a workout strategy that best fits your circumstances. Workouts can also be a stressful time for both parties but with Cranewoods experience, civil demeanor and guidance you can be confident your situation is presented in the best circumstance to lead to mutual agreement.
One of the keys for both bank and borrower is to understand the financial situation of the other;
For borrowers, try to look at how the bank is viewing the property. Is it a complex development that they have no interest in foreclosing on and really want to leave the borrower in place? If so it is critical that both bank and borrower are sure that the borrower is the most competent person to “stay in the deal” and maximize the property value – even if that means a loss. If the bank is carrying the property at full value on their books, they may be hesitant to engage in a restructuring that will trigger a loss, but if they have already written the loan down they may be anxious to resolve the loan quickly – even at a loss. Recognize that how the bank is carrying the project on their books, and how anxious they are to resolve a loan can quickly change at quarter end and year end. And I always recommend that is a property is upside down and the borrower cab bring any 3rd party offer to the bank, that should be aggressively pursued. Often a bank will accept an offer that provides the bank with needed capital – again, understand the loan through the bank’s eyes.
For banks, try to unemotionally look at the borrower’s current financial condition. If the borrower is having financial issues or is simply not in a financial position to carry or pay off the loan, then a hard line is probably not in the best interest in the bank. Before foreclosing on the mortgage or suing on the note take a good look as to whether that is really what is best for the bank. A restructuring of the loan or acceptance of a short sale may be in the best interests of the bank even if it triggers a loss.
Cranewoods can work with both the borrower and the lender either as a strategist or directly involved in negotiations, in order to provide a satisfactory resolution to the loan issue.
Solutions can include:
- Loan extension/modification
- Split loan into a “good secured loan” and “bad unsecured loan”
- Alternate property uses
- Disposition/liquidation of assets in partial or bulk sales
- Leasing vs selling
- Short sales
- Loan curtailments
- Deed in lieu and a release of personal signature
- Deed in lieu plus a deficiency payment
Cranewoods works with lenders and borrowers to explore strategies and workout defaulted loans. With creative solutions, we can help both parties arrive at a process that protects credit and property yet recognizes the challenges in today’s markets.