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ALTERNATE STRATEGIES TO TROUBLED LOANS
Troubled Hotel and Commercial Loans and Alternate Strategies to Foreclosure and Bankruptcy
Due to the Coronavirus pandemic hotels, retailers, movie theaters, casinos, and vacation providers—face financial distress and foreclosures. Lenders and Borrowers are faced with options. We only represent Borrowers.
A workout in some cases is highly favored by the borrower. In a Workout with the bank, the lender gives the borrower the opportunity to continue to manage the asset. Meanwhile, forbearance is given for time to find new money, buyers, better markets, partners, etc. Usually an extension of maturity, restructuring loans, reduction of interest rate, reduction of principal. advance of new money and a subordination to new money.
A Deed-in-Lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings. Some benefits are the it avoids a foreclosure on the record, it may preserve best possible relationship with lender, you may obtain concession from lender such as release or partial release from personal guarantees, and retention of smaller or subordinated interest in the asset, or payment by lender of “walk away” money.
Lenders generally prefer both options above. Foreclosures are costly and lengthy, furthermore borrowers will look to initiate a bankruptcy in order to stop a foreclosure. Bankruptcies will have an adverse effect on on operating a business and its image and value. Lenders are also faced with the risk that the court will strip down lenders secured claim if the value of the asset is worth less than the debt. It also faces the possibility of lien avoidance. So for these and many other reasons banks may reason with the alternate solutions to foreclosing on hotel and certain hospitality loans.
Sara Saba, Esq.
Nicholas Guiliano, Esq.
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