Beyond Dumb Loans: Working With Delinquent Borrowers

TAMPA, FL—Ron Cohn, managing partner of the Arnstein & Lehr law firm's Tampa office, asked the question about dumb loans this morning in part one of our exclusive interview. Now, he's offering some sound strategies for lender working out delinquent loans.

Check out his advice and sound off in the comment box. Do you agree with Cohn? What has been your experience?

GlobeSt.com: What strategies are working best for lenders working with delinquent borrowers?

Cohn: I've always believed that it's better to do a loan workout than to complete a foreclosure, if at all possible. Even after we've started the foreclosure process, we still encourage the borrower to work toward a business resolution, if such a resolution makes good business sense and can be made under the circumstances of that particular case.

We often use litigation as a tool to keep the borrower focused on the underlying problem. Often, a borrower is in denial, hoping his business' situation will somehow improve—that a big payable will come in, or collateral values will rise to a sufficient level to allow a refinance or sale. So unless they are faced with an active and ongoing litigation with its resulting deadlines, many borrowers have little motivation to work toward the resolution of a default.  

Some borrowers, unfortunately, are too far gone by the time they are referred to us, in which case we liquidate the lender's collateral and obtain a deficiency judgment. For matters where a workout is possible, however, but the borrower is not being responsive to the lender's efforts to work toward a resolution, we've been very effective in creating an environment where the borrower has no choice but to stay focused on a resolution. We recommend that the borrower talk to the lender when problems start—it's always a good idea to have as long as possible to figure things out.

GlobeSt.com: What other trends are you seeing in the market?

Cohn: Our transaction work is picking up, all over the board. We are working on closing loans for hotels, office buildings, raw land. Developers are starting to stick their heads up.

I am very optimistic for the short term. But for long-term success, there needs to be a balance in the market.

As a commercial lender, if you're too careful, you are going to lose deals. But if you're sloppy, you'll get deals that will fall apart down the road. It's important that lenders compete, but that they also carefully analyze the collateral and inherent risk in each deal they consider.