All the talk on Loan Mods, anyone have success

Commercial or Residential? We have modified numerous loans for our own commercial real estate holdings and for other owners as well. Focus on the following keys to success. Good luck.

1. Start early. Don’t wait until you are in default. (i.e. missed a payment or can’t pay principal at maturity). Don’t let a lack of time force the lender to make a decision without you.

2. Treat a loan restructure like a new loan application. Also, don’t wait for the lender to ask for info. Proactively approach your lender with organized info including an updated the rent roll, 24 months operating statements, a description of the market environment, sale and lease comps, etc. Be prepared to re-submit borrower financials. You must educate your lender. Lenders are not every day real estate operators. They don’t always know the best solution. They often rely on inaccurate appraisals or brokers who may just be telling them what they want to hear. Go in with a written plan or operating strategy. This should include an investment proforma that can substantiate the ongoing project economics. The assumptions need to be backed up by current market data. Prove your operating expertise or get some. Remind them of your qualifications in writing. This gives you credibility. When you do this work for the lender you are taking control over the process. If the lender is too busy to do this work on its own and in the absence of the facts it may make a hasty decision.

3. Do it right the first time with the help of an experienced professional. If you are not prepared the first time you will lose credibility and the lender may lose interest. You need to get their attention.

4. Understand Lender Motivation. All lenders are different. Each has varying decision impulses based upon numerous factors such as corporate structure, capitalization, federal regulations, portfolio makeup, financial condition and more. These forces can be understood to a degree by just inquiring with the lender. Expert knowledge of these factors along with banking relationships provide further insight into the more obscure lender preferences.

5. Agree with your lender on the asset’s current market value. If the lender relies on an outdated or inaccurate appraisal they will likely make and inaccurate decision on your modification. This happens a lot. Share your proforma and provide backup for your assumptions. In some cases we work with the borrower and lender solicit bids from investors to get a true current valuation. Third party validation will provide the bank with clarity and remind it that consequences of a foreclosure could be much worse than a workout with the current borrower.

6. Create a win/win situation. You must bring value to the lender’s position. Outline your proposed modification in writing. Have multiple backup plans. All of these must provide a solution for the lender. You have to give in order to get. Otherwise the bank’s best strategy may be to foreclose.

7. Legal analysis. Your modification should include a legal review of the loan docs, any guarantee provisions and the laws of your state.

8. Create rapport. Banks will base a big part of a modification decision on its relationship with the borrower. If there is little likelihood of future business, the bank is going to show much less flexibility. Additionally, the bank’s assets mangers are very busy and don’t want to deal with difficult borrowers. It is imperative that the borrower be respectful despite the high stress of the situation. We have heard of several examples where banks sold the borrower’s note to a 3rd party at a price even though the borrower was willing to pay more solely because the borrower was “difficult”. Another strategy to enhance your leverage in the relationship is to offer move your personal or business banking to your lending institution.

9. Know when to play hardball. This can work in the absence of personal guarantees and when the lender is being unrealistic. Despite a sound strategy and fair proposal the lender may not show any compromise. If you are certain the lender has no better options it may be time to stand firm and let the bank explore its options and realize on its own that you are its best solution. This may take some guts and patience. Do your research and get third party input to validate your position.

10. Spend a little money to get the help of an expert. The insight from someone doing this every day will make your life a lot easier will often provide that small missing piece that creates a successful outcome and saves you a ton of money. It’s like home improvement projects. It was really fun installing that light fixture so now your going to install a new garage door opener or lay tile in the bathroom. The only problem is that it came out a little crooked and now you have to pay to have it fixed.