These are unusual times to say the least. Over the years, many of us have seen local bank failures (Bank of New England being one), several recessions and downturns, and subsequent recoveries and cycles. However, this pandemic is a first for almost all of us. The personal tragedies that it has caused have been staggering, and the impact upon our lives at home and at work, and both emotionally and, in many cases, financially, has been substantial.
Over the years, Cooley, Shrair P.C. has represented lenders in loan transactions, loan workouts, foreclosure matters (both commercial and residential), and Article 9 secured party sales and has also served as lender’s counsel in Chapter 7, 12 and 13 bankruptcy cases in Massachusetts as well as Connecticut.
The economic impact on existing loans caused by the pandemic is no doubt being felt by almost all lenders, and what lies ahead is uncertain. It may be a good time to review those loans showing signs of weakness, whether evidenced by missed payments or covenants, decreasing collateral values or other financial indicators, and this office is available to assist in such review.
The following are some of the things this office would recommend you consider for any loan on your watch list:
Review the loan documentation for completeness and any deficiencies;
Review the default provisions to confirm existing defaults, if any;
Consider obtaining updated appraisals where appropriate, especially where a foreclosure is anticipated;
Review the status of real estate taxes and other municipal liens with any mortgage loan not being escrowed for such liens;
Check your UCC filings for proper and timely filed continuation statements;
Check the status of title certificates for loans secured by titled vehicles;
Check online to see if attachments or other junior liens have been filed with the real estate records or the UCC filing offices;
Review the loan transaction and history to determine if a loan modification is in order;
Review the loan transaction and history to determine, due to an existing default or defaults, a forbearance agreement (which can also include provisions modifying loan terms where appropriate) is recommended in order to preserve the default and shorten notice periods applicable to a possible foreclosure or other actions;
Anticipate the possibility of bankruptcy and its impact on any loan, especially with respect to any payment or collateral furnished within the last 90 days to you by any borrower, guarantor or anyone else obligated with respect to the loan;
Where a bankruptcy is anticipated or a reasonable possibility, have counsel review the risk that any prospective transfer to the lender may be avoided by the bankruptcy trustee as a preference or fraudulent transfer under applicable bankruptcy law;
If any borrower, guarantor or other obligor files bankruptcy, consult with counsel to determine whether an appearance in the case is warranted to protect your rights; whether to attend the trustee’s meeting of creditors to examine the debtor at the hearing or obtain other information about the debtor and the debtor’s assets helpful to your loan; whether to prepare and file a proof of claim to protect your rights to any distribution to be made to creditors; or whether a motion for relief from stay or to dismiss the bankruptcy is appropriate in order to proceed against your collateral.
Determine what covid-19 related federal and state laws may impact your rights and remedies, or their enforcement, at this time, with respect to any loan that may be a prospect for a workout;
Determine what federal or state laws are pending before congress or the state legislature and should be considered as part of your loan review;
With respect to any such covid-19 related laws, determine which laws affect only residential loans, but not commercial loans, or affect only loans in default due to the covid-19 crisis.
The above highlights many, but not all, of the matters that should be considered for review at this time. Others may appear following a closer examination of the bank’s file. It is our hope that you have found the recommendations above helpful and a good starting point for reviewing any loan situation of concern to you during these unusual times. Please do not hesitate to contact us if you have questions or comments or could use the assistance of this firm in any way. In the meantime, stay safe.