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Earlier installments of this series on Workouts 101 have discussed borrowers’ and lenders’ mindsets, borrowers’ points of leverage, and some of lenders’ points of leverage, as well as the need for new counsel to review any loan documents prior to commencing any workout (the term “workout” is used generically in this series of posts, to mean anything the lender does to change the original terms of the loan to come to a consensual deal to resolve the loan, including loan modifications, extensions, forbearance agreements or complete loan restructurings).  In addition to legal review, however, a business review is also needed. Business review:  the lender usually knows what the property is worth (or can find out).   As noted in Workouts 101, Part 4, the lender will typically hire an appraiser to evaluate the property, and the value will guide the lender’s business and strategic enforcement and workout decisions.   A good appraiser, who is competent to testify in court if needed, is absolutely vital.  It is not uncommon for workout and even bankruptcy outcomes to be determined utterly by a dispute over the actual value of the underlying real estate. So don’t go into that possible battle unarmed.Frequently lenders may not have as much knowledge about the potential upside of, or challenges facing, a given property as the developer/owner, so the developer/owner may be able to provide the lender with more information to build on the lender’s appraisal of the property, which may lead to more creative resolutions of the outstanding loan.In addition to reviewing an updated appraisal, a lender should obtain and review borrower’s and any guarantor’s updated financial statements, the actual use made of the loan to date, project budgets, borrower’s compliance with loan covenants (including financial covenants), market conditions, borrower’s and guarantor’s ability to pay and other criteria used by the lender to determine if a workout is feasible and would net the lender a better return than would a foreclosure.Lender’s early stage moves.  Once a lender decides to negotiate a possible workout of a real estate loan, there are several steps it usually will take.

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