Foreclosures and Creative Loan Workout Agreements for Commercial Borrowers

What do foreclosures and creative loan workout agreements entail?  

Foreclosures and creative loan workout agreements are crucial tools for commercial borrowers in Florida who are struggling to meet their mortgage obligations. Foreclosure is the legal process by which a lender takes control of a property when a borrower defaults on their mortgage loan. In Florida, foreclosures are typically conducted through a judicial process, requiring court involvement to finalize the repossession of the property. 

On the other hand, creative loan workout agreements offer an alternative solution to foreclosure for borrowers facing financial hardship. These agreements involve modifying the existing loan terms to create a more manageable repayment plan. Examples include loan modifications, short sales, forbearance agreements, and deed-in-lieu of foreclosure transactions. 

For example, suppose a commercial borrower cannot make their mortgage payments due to declining business revenues. To avoid foreclosure, the borrower negotiates a loan modification with their lender, reducing their interest rate and extending the loan term. 

Alternatively, suppose a borrower, realizing they owe more on their mortgage than the property is worth, negotiates a short sale with their lender. As a result, the lender agrees to accept a lesser amount than the outstanding mortgage balance, allowing the borrower to sell the property and avoid foreclosure. 

Need help with a matter related to foreclosures and creative loan workout agreements? Schedule your consultation today with a top borrower representation attorney.  

Which laws and regulations apply to Florida foreclosures and creative loan workout agreements?  

A combination of Florida and federal law govern foreclosures and creative loan workout agreements in Florida.  

Chapter 702 of the Florida Statutes (Foreclosure of Mortgages and Statutory Liens) is the primary state statute governing foreclosures. These statutes set forth the procedures and requirements for initiating and conducting a foreclosure action in the state. Provide certain legal protections to borrowers, including the right to cure a default, notice requirements, and opportunities for mediation. However, they also contain protections that allow borrowers to explore alternative options and negotiate favorable loan workout agreements. 

Lenders and borrowers must also comply with federal regulations, such as the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). For example, TILA (15 USC § 1601 et seq.) mandates that lenders disclose essential information about loan terms, including interest rates, fees, and other costs. In addition, RESPA (12 USC § 2601 et seq.) regulates the loan settlement process, requiring transparency in settlement costs and prohibiting kickbacks and referral fees, among other provisions. 

What are the strategic benefits of foreclosures and creative loan workout agreements in borrower representation?  

• Preservation of Business Operations: Creative loan workouts, such as loan modifications and forbearance agreements, allow borrowers to restructure their debt and maintain business operations.  

• Reduction in Debt Obligations: Both foreclosures and creative loan workout agreements can lead to a reduction in overall debt obligations. In a foreclosure, the property is sold, and the proceeds help pay off the mortgage debt. In a loan workout agreement, such as a short sale or deed-in-lieu of foreclosure, the lender may agree to accept less than the total amount owed.  
• Improved Credit Standing: While foreclosures negatively impact a borrower’s credit, a well-negotiated creative loan workout agreement can minimize the damage. For example, a short sale may impact credit scores less than a foreclosure, and a loan modification may even help improve a borrower’s credit over time.  
• Tax Benefits: Certain creative loan workout agreements may result in tax advantages. For instance, the Mortgage Forgiveness Debt Relief Act, since added to the Internal Revenue Code, allows borrowers to exclude the amount of forgiven mortgage debt from their taxable income under specific conditions, leading to significant tax savings. 
• Flexibility: Creative loan workout agreements allow borrowers and lenders to tailor solutions based on individual circumstances. This flexibility enables borrowers to pursue options that best suit their financial situation and future business plans, ultimately allowing them to regain control of their financial future. 

What must a commercial borrower do to pursue foreclosure or creative loan workout agreements, and what risks are involved?  

Commercial borrowers pursuing a foreclosure or creative loan workout agreement should:  

• Evaluate their Financial Situation: The borrower should assess their financial standing by reviewing cash flow, outstanding debts, and the property’s value to determine if foreclosure is unavoidable. If it is, creative workout agreements may be a viable option.  
• Engage Legal Counsel: Retain an experienced attorney specializing in commercial real estate and borrower representation to navigate the complexities of Florida’s foreclosure laws and assist in negotiating and structuring favorable loan workout agreements  
• Comply with Statutory Requirements: Ensure compliance with all statutory requirements, such as notice provisions and the right to cure a default in foreclosures.  
• Explore Options: Investigate various loan workout agreement alternatives, such as loan modifications, short sales, forbearance agreements, and deed-in-lieu of foreclosure transactions.  

• Communicate with Lender: Maintain open lines of communication with the lender, providing financial documentation and outlining intentions to negotiate a creative loan workout agreement. 

In certain situations, the following legal claims may arise out of foreclosure or issues with workout agreements that were a little too creative:  

• Breach of Contract: A borrower may assert a breach of contract claim if the lender fails to abide by the terms of the mortgage agreement or any subsequent loan workout agreement.  
• Wrongful Foreclosure: A wrongful foreclosure claim may arise if the lender initiates foreclosure proceedings without a sound legal basis or fails to comply with Florida’s statutory requirements.  
• Fraud: Borrowers may allege fraud if they believe the lender engaged in deceptive practices, such as misrepresenting the terms of a mortgage or a loan workout agreement.  

• Lender Liability: In some instances, borrowers may assert lender liability claims, asserting that the lender’s actions or inactions contributed to their financial distress. 

When a set of facts is appropriate to meet the requirements of foreclosures or creative loan workout agreements, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path to seek appropriate remedies.  

To determine whether your unique situation may necessitate litigation, please contact our office to set up your initial consultation. 

Frequently Asked Questions 

1. How long does the foreclosure process take in Florida? 

The foreclosure process in Florida typically takes about six to nine months, depending on the case’s specifics and whether the borrower contests the action. However, the timeline can vary significantly based on factors such as court backlog and the lender’s efficiency in pursuing the foreclosure. 

   2. Can a borrower reinstate their loan after foreclosure has started in Florida? 

Yes, under Florida law, borrowers have the right to reinstate their mortgage by paying all past due amounts, including late fees, attorney’s fees, and other costs incurred by the lender. The reinstatement must occur before the earlier of the entry of a judgment or the date specified in the notice of default. 

   3. What happens to a borrower’s credit after a foreclosure or creative loan workout agreement? 

A foreclosure can significantly damage a borrower’s credit, typically lowering their credit score by 100-200 points and remaining on their credit report for seven years. Creative loan workouts, such as loan modifications or short sales, can negatively impact credit scores but are generally less damaging than a foreclosure. The exact impact will depend on the borrower’s overall credit profile and the specific terms of the agreement. 

Have more questions about foreclosures and creative loan workout agreements?  

Crucially, this overview of foreclosures and creative loan workout agreements does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances. 

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively. 

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain tireless advocates at every step. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant. 

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.