When a borrower defaults on a loan, what are your options? Two options are foreclosure and forbearance agreements. Read on for a discussion of forbearance in Part II of this series.
In basic terms, a forbearance agreement is a type of repayment agreement in favor of the bank that is intended to assist a defaulting borrower in getting back on track and getting the bank paid. Many factors go into developing an agreement that is beneficial for the bank and productive for the borrower. A forbearance is sometimes referred to as a type of “workout”.
Most commonly, if a borrower fails to make a payment on their loan with the bank, a “default” of the loan occurs. Banks follow their borrowers closely. Lenders should follow bank protocol and the contract and follow up with counsel to draft an appropriate agreement.
Most banks will explore a workout opportunity if the situation is a viable one. Commercial, Agricultural and Consumer loans will need to have different terms to comply with the various state, federal and contractual terms governing each unique situation. Laws and regulations in the banking industry change frequently, and each of the aforementioned loans is uniquely governed. The agreement that may have worked 6 months ago for a commercial loan likely won’t work for the residential loan currently in default. An experienced attorney can help you navigate these waters.
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