Effective Negotiations Require Effective Preparation By Suren Ambarchyan

With the increase in commercial loan defaults, borrowers are regularly faced with difficult choices ranging from the sale of their properties in a real estate market with declining values at prices below what is owed to their lenders to foreclosure, litigation support and bankruptcy attorney. In many cases, there is a better alternative – namely, commercial loan modifications and workouts.

Loan workout agreements present a “win-win” opportunity for both lenders and borrowers. Borrowers receive the “opportunity” to address temporary cash-flow, market and other problems and the “time” necessary to implement changes. In exchange, lenders obtain the “promise” of improved prospects for repayment coupled with “assurances” that delayed action will leave them in no worse condition than if the lender had taken immediate action.

At first glance, it would appear that lenders and borrowers have a strong unity of interest as they both seek an “exit” strategy regarding the troubled loan that seeks to maximize the likelihood and amount of repayment. While there may be a theoretical unity of interest between lender and borrower, lenders and borrowers do not always act in their own best interest. Often, the declaration of a loan default causes the lender and borrower to retreat from sensible negotiation. In the very instance when open communication and cooperation are essential, the parties instead engage in inflexible, hardball negotiating tactics focusing more on the original agreement than steps to mitigate a potential loss.

Experienced loan workout specialists understand the simple truth that loan workout negotiations are all about restarting communication and reaching common ground. Here are some tips from Los Angeles loan workout specialist Suren Ambarchyan:

  • Tip #1 – Identify the Key Decision-Maker: Similar to residential loan modifications, commercial loan workouts often are stalled at the outset simply because the borrower simply isn’t talking to the right person within the lending institution. Experienced loan workout specialists have established connections with loss mitigation specialists and jump start the negotiation process by engaging in discussions with key decision-makers who understand current market conditions and understand that loan workouts often achieve better results in terms of loss mitigation than foreclosure, litigation and bankruptcy.
  • Tip #2 – Before Approaching the Lender, Be Prepared: Commercial borrowers often seek relief from their commercial loans without the benefit of legal counsel and are ill-prepared to respond to lender inquiries. In fact, some borrowers actually hamper their chances for securing a loan modification by provide too little, too much or incomplete information. Experienced loan workout specialists are ready and prepared to offer lenders the key information necessary to lay the groundwork for a successful loan workout plan including:
    • updated and comprehensive financial information on the borrower, real estate project and guarantors, if any,

    • current valuation of the collateral supporting the loan and the workout plan,

    • concise analysis and determination of appropriate loan structure (e.g., term and amortization schedule), covenants, etc., and

    • appropriate draft legal documentation to make the changes to the loan documents necessary to implement a loan workout plan.
Tip #3 – Focus on Lender Loss Mitigation: Whereas borrowers focus on their needs and circumstances, experienced loan workout specialist focus on the lender and its loss mitigation efforts, carefully analyze the overall situation (including market conditions) and craft a compelling, narrowly focused argument in favor of voluntary repayment over foreclosure. Experienced loss mitigation specialist sell the viability of the loan workout plan and the benefits of voluntary repayment. In doing so, they address such issues and factors as:
    • the character, financial condition, resources and payment record of the borrower,

    • the nature and degree of protection provided by the cash flow from business operations or the collateral on a global basis that considers the borrowers’ total debt obligations,

    • temporary and long-term market conditions that may influence repayment prospects and the cash flow potential of the business operations or underlying collateral, and

    • the likelihood of repayment support from financially responsible guarantors.
  • Tip #4 - Be Accurate, Honest and Credible: Borrowers and their legal counsel must be able to provide credible support for their assumptions and conclusions supporting their proposed loan workout plan. When primary sources for repayment decline, the value of the collateral becomes even more important. In the context of a workout, borrowers and their legal counsel should be prepared to address current project plans and market conditions that were considered in the development of the workout plan such as:

    • the performance of the project,

    • conditions for the geographic market or property type,

    • variances between actual conditions and original appraisal assumptions, and

    • changes in project specifications.

  • Tip #5 – Offer Creative Solutions: Successful loan workout specialists consider all possible alternatives and offer creative, innovative approaches. While a lender may be focusing only on “as is” collateral valuations, loan workout specialists focus on alternative valuation models such as: “as completed” valuations or “as stabilized” valuations.
Often, foreclosure can be avoided by making the case that “a little more… results in a lot more.” That is, if the lender gives the borrower sufficient time and resources to implement the loan workout plan, the efforts of the borrower will increase the value of the collateral and the lender will ultimately have less risk and suffer a smaller loss as a result of approving the proposed loan workout plan. However, to effectively re-frame and re-focus discussions, borrowers need a loan workout specialist who can provide credible support for the assumptions underlying the loan workout plan including such information as vacancy and absorption rates, lease renewal trends and anticipated rents, effective rental rates and sales prices, time frame for achieving stabilized occupancy, projected net operating income, etc.

Interested in learning more about commercial loan workout plans? Contact Los Angeles loan workout specialist Suren Ambarchyan at Law Offices of ALG

                    The Law Offices of ALG and Associates   
                                        Loan Modification

Many property owners realize they are in an unsustainable financial position and need a loan modification on their primary residence, second home or income property’s mortgage to retain ownership of the property. Many have heard the horror story of paying thousands of dollars to a “loan modification company” before any work has started and have never heard from the company again. So, how do property owners choose the right firm to represent you? Below are the questions that the Law Offices of ALG and Associates recommend property owners ask the firm they are considering:

First, is the firm legitimate? A law firm that specializes in Real Estate Law is your best option. Are they in good standing with the state bar? Do they have any complaints or disciplinary actions against them? If there was a complaint, how was it resolved?Does the law firm comply with all state and federal laws pertaining to loan modifications? Your first clue will be how the firm collects monies for its services. If they ask for any monies before some of the work has been completed, it is unlawful.

Second, can the firm provide strong experience and examples of successful cases they have completed? How many cases have they completed? How long have they been in business?

Third, does the firm have the resources to complete the job in a timely manner? Loan Modification cases typically take about 3 to 6 months to reach a settlement and require significant back and forth between the bank and the law firm. Do they have the critical mass of staffing to be able handle the case volume, negotiation and customer service requirements? Typically each case requires negotiators, processors, underwriters and case managers, in addition to the Attorney, to successfully achieve a modification for the property owner.

Fourth, does the firm set appropriate expectations? This depends ultimately on what is success for the property owner. There are many factors in what makes a case successful to a client and a reputable firm will set appropriate expectation on what can be reasonably achieved in a loan modification case rather than tell you what you want to hear to get your business. Whenever possible, it is recommended that the property owner meet with the prospective firm in person prior to retaining them.

Often, property owners will request a money-back guarantee for a successful modification. If the firm the property owner is considering offers a money-back guarantee, this should be a major cause for concern. The firm will act as the property owner’s representative or agent in a negotiation with the lender. The lender itself or a third party, called the investor, may own the mortgage. The party that owns the mortgage will makes the final decision on what new mortgage terms they will accept, if anything. It is impossible to guarantee exactly what the mortgage owner will do. For a firm to represent to a property owner otherwise should be a cause of great concern to the property owner.

The usual parameters of a case are stopping a foreclosure sale on a property, negotiating missed payments, accrued interest, property taxes and late fees, transitioning the loan from an adjustable rate mortgage to a fixed rate mortgage, moving from an interest only payment to an amortized payment, reducing the interest rate, change the term of the mortgage, including property taxes and insurance escrows in the monthly payment instead of being paid separately by the property owner, settling second mortgages for less than owed, and reduction of the principal balance owed.

As once see, there are several factors to negotiate with the bank and without appropriate leverage of full legal representation, a Forensic Audit, a possible law suit, and years of expertise, lenders aren’t generally motivated to consider your case.

The banks and mortgage services work with hundreds of thousands of people at a time and handle every request in an heartless, robotic fashion to attempt to support the masses, not applying individual attention, creativity, or compassion into each borrower’s situation. So, working with the banks directly rarely works in the homeowner’s favor. We have clients who have attempted to work with their lenders for over a year with zero results before they retained the Law Offices of ALG and Associates.

Each lender has very specific guidelines they need to see in order to approve the loan modification. Unfortunately, most property owners do not have access to this information independently, and blindly submit and application, hoping for an approval. In essence, they are asking the lender to do them a favor. The financial information a property owners provides and how it is presented is vital to achieving an approval or denial with the lender and, through years of accumulated experience, the Law Offices of ALG and Associates knows exactly what each lender needs to see before we submit, which helps us achieve optimal results.

With proper research a property owner can find the a firm that is legitimate, complies with appropriate laws, can documents their experience, has the resources needed and sets appropriate expectations with the client. The Law Offices of ALG and Associates realize a Loan Modification is very important matter and the property owner definitely wants to treat it with urgency. We strongly encourage that property owner’s do thorough research and make sure the firm they choose is the right firm for them.

The Law Offices of ALG and Associates can help advise you about Loan Modification – For more information about Loan Modification Services please visit www.lawofficesofalg.com or give us a call for a free consultation: Toll Free: 888-LAW-3111 

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