The Ox and the Ditch: FAQ - Reduce the Commitment? Monthly Statements? New Written Agreements?
Guest Writer: Brenda Brown, Winstead PC
More from ourTough Times FAQs series:
FAQ #4 - Do I need to reduce the commitment amount after sending a Notice of Default?
- Typically, no – once the loan is declared to be in default, or once the maturity of the loan is accelerated, the lender has no on-going funding obligation – but confirm this in the documents.
- The lender typically is not required to fund current loan allocations or grant new loan allocations.
- Communicate clearly in writing to the Borrower that the lender has no further obligation to the fund and negotiations, inspections, administrations and even making future draws during a draw period (whether under a construction loan or a partial disbursed loan) do not amount to waivers of pre-existing defaults or can be considered obligations for future fundings.
FAQ #5 - After a Default Notice, should I send statements showing Regular Monthly Interest or statements showing interest at the Default Rate?
- Statements to the borrower should reflect the Default Rate of interest (rather than the prior regular interest rate), late fees, and any other fees due the lender (such as legal fees) – all of which usually do not appear in the "standard" statement.
- So, typically it is best to STOP sending the regular monthly statements.
FAQ #6 - What else should I put in writing?
- Agreements Regarding Interim or Protective Advances
- Forbearance Agreement
All of these first six questions underscore the fact that the status of the property and the loan must be looked at with current and fresh eyes so that the opportunities for solutions are enhanced, and the risks of encountering questions of waiver are avoided.
To read the entire Tough Times FAQ series, please click here.
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