To give you an advantage when working out a loan
modification with a lender, I am going to share the lenders wish list of borrower concessions they seek.
Understanding what a lender wants in a loan modification
will help you better prepare and have more success
working out a loan modification.
Before a lender agrees to modify a loan agreement,
they will want as many concessions from the borrower
at they can reasonably get. These concessions are
negotiable based on each unique situation. Following
is a standard list of borrower concessions:
Lender Wish List of Borrower Concessions
- Additional collateral
- Personal Guaranties
- Principal reduction
- Cash infusion to cover operating cash shortfalls
- Capital reserve account
- Escrow taxes and insurance
- Secondary debt or equity financing
- Escrowed funds to cure deferred maintenance
- Provisions to cure default
- Waiver of defenses
- Standards of performance
- Provisions for default and automatic transfer of title
- Subordination of borrower’s profit
- Subordination of borrower related fees
- Provision for project monitoring, which may include
There are numerous loan modification arrangements
available to achieve a successful workout. Since each
loan workout involves a unique set of circumstances,
lack of creativity becomes the only real stumbling block
that leads to failed negotiations. A lender will modify a
loan if the borrower agrees to certain concessions.
This lender “wish list” of borrower concessions includes
most lender requirements. The lender’s primary concern
is extending more risk on a troubled loan. A borrower can negotiate a loan modification but will have to give the
lender some concessions. It is rare that all of the con-
cessions listed above are included in a loan modification.
In the end for the lenders, it comes down to believing that
the borrower can successfully execute the turnaround
plan without increasing their risk.
Make sure you study the lenders playbook so that you
have a competitive advantage when working out a
troubled loan. Create a borrower wish list of lender
concessions, and be prepared to meet somewhere
in the middle when negotiating a loan modification.
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