Workouts of Commercial Real Estate Loans

Summary

This practice note describes the workout process for a commercial real estate mortgage loan from both the lender's and the borrower's perspective. When a commercial real estate mortgage loan goes into default, bankruptcy and foreclosure are not the only possible outcomes. In a workout, the lender and the borrower negotiate a solution to a defaulted or otherwise distressed commercial real estate mortgage loan. Topics discussed in this note include loan default analysis, timing of workout discussions, objectives of both parties, lender liability, the pre-negotiation agreement, due diligence, common workout structures, and preference and fraudulent transfer claims. Each potential workout presents unique issues and facts that must be considered before selecting a workout strategy. One or more items below may not apply to the particular workout in question.