How can a real estate-secured lender, faced with increasing defaults by borrowers and falling property values, protect itself during borrower negotiations pursuing a restructuring, or “workout,” of the loan?
In the recent real estate downturn, lenders increasingly find themselves faced with defaults, or imminent defaults, by their borrowers. The defaults may be caused by decreasing cash flows generated by the properties as a result of the general national economic conditions (e.g., retail centers and hotels), may be caused by the tightening of the credit markets and borrowers’ inability to refinance their loans, many of which include a significant balloon payment upon maturity, or may be caused simply by borrower mismanagement of the underlying asset and its cash flows.
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