This is second in a series covering forbearance agreements. Previously on TT4L (am I the only person missing Jack Bauer?) (so . . . in your next workout or default, simply ask yourself, "what would Jack Bauer do?" – actually, don’t . . . ), I discussed the "what is it" and "why do it" aspects of forbearance agreements.
Now we move on to some of the topics covered in, or terms of, a typical forbearance agreement.
So, what are the . . . .
Key Terms of a Forbearance Agreement?
- the forbearance period will end upon what might be called a "Termination Event." This typically include a bankruptcy (or insolvency), a "new" loan default or any other specific events (such as the failure to perform "new" obligations that are set forth in the Forbearance Agreement, as noted below)
- Identify Borrower’s obligations during forbearance period. The Forbearance Agreement may modify or expand Borrower’s obligations under loan documents. For example, it is common to require payment of set amount per month during forbearance period, which amount may be more or less than pre-forbearance installments under loan andor to furnish new or additional information about the collateral or the key principal.
- Lender’s obligation to forbear (i.e., to not exercise remedies) until the occurrence of a Termination Event
- Rights and remedies of Lender upon Termination Event
- Acknowledgment of balance due, existence of default(s), enforceability of loan documents, Lender’s rights and absence of defenses
- Release by Borrower (and key principalguarantor) of any and all claims and causes of action up to and including the date of the forbearance agreement
- Acknowledgment that forbearance agreement does not amend or modify the loan documents
- Tolling provision if limitations will be an issue at the end of forbearance period
Finally, two sidebar comments -
- if you are attending the Mortgage Lending Institute at the University of Texas Law School this week, Brian Morris and John Nolan will be speaking on this same topic. Pepper them with questions.
- I’ll be attending the annual meeting of the American College of Mortgage Attorneys this week, where the education sessions center on the theme of "Rebound or Recession." As I always do when I attend industry and professional meetings, I’ll report to you on topics that might interest you.
If you have other favorite forbearance agreement provisions, or any war stories, please comment upon them below.