Workout

As a general rule, the Bank would rather have its money than go through the process of foreclosure on its collateral.  If the Bank is considering a workout or foreclosure, the following checklist should be reviewed prior to the Bank’s decision of whether or not to accelerate.

•    Locate the original signed promissory note and, if applicable, any guaranty.

•    If UCC collateral is involved, review the loan file to confirm the Bank has the original signed security agreement(s) and a valid UCC-1 on file.

•    Conduct a title search in the applicable real property records to confirm that the Bank’s lien is first priority.  Review the lien search to determine the existence of tax liens, second liens and judgments against the debtor.

•    If possible, request that the borrower allow the Bank to inspect the real property and other collateral (and take an appraiser with you).  Look for evidence of environmental issues.

•    Confirm that improvements on the property are covered by insurance.

•    Review the history of the loan file.  Have side deals been made?  Has the Bank waived certain rights?

•    If the collateral includes rents and the Bank has not been receiving them analyze the tenants to determine the creditworthiness and the likelihood of continued payments under the lease(s).

•    Bank officers should not get involved in the management of the debtor/borrower.

o Avoid attending directors meetings and debtor strategy sessions.

o Avoid telling the debtor which assets it should sell, which creditors it should pay, which employees it should let go.

o Avoid getting in the position of determining which checks of the debtor should be honored and which debts of the debtor should be paid.

o Avoid disclosure of confidential information regarding the debtor and its problems.

o Do nothing which could be considered a slander of the debtor’s credit or reputation or an interference in the debtor’s business relationships.

o Avoid any activity which could be considered ganging up on or conspiring against the debtor.

o Avoid any implication of continued support, especially at creditor’s meetings.  Qualify every statement with phrases such as “the Bank continues to evaluate”, “the Bank cannot promise you anything.”