The global pandemic caused by the novel coronavirus has already begun to cause significant disruption across several industries, resulting in decreased revenues, layoffs, closures and the like for businesses both in Massachusetts and across the country. Loan defaults are already starting to be reported with ever increasing frequency.
In the coming weeks and months, lenders will begin to hear from their borrowers with requests for deferments and modifications of their loan arrangements. With so much uncertainty surrounding the duration and impact of this pandemic, lenders need to be thinking about the best short term and long-term strategies to maintain their relationship with borrowers, preserve their rights and work towards the lender’s ultimately goal, be it resuming a normal relationship or exit by the borrower. In these difficult circumstances, deferment and forbearance agreements can be a great tool for lenders to bridge the more immediate effects of the pandemic until its longer-term effects become clearer. This type of arrangement not only preserves the relationship, but also protects the lender’s rights and remedies and can be very helpful if foreclosures, loan recovery and enforcement actions become necessary.
A deferment agreement can be used as a stop gap to address a short-term issue with the goal of maintaining a relationship once the pandemic has subsided. Deferment agreements can include terms such as interest only payments, deferral of payment obligations, interest rate adjustments, re-amortization and extensions of the repayment time frames.
Forbearance agreements are more typically used for longer term solutions often with an exit from the credit as the lender’s ultimate objective. Both deferral and forbearance agreements should contain acknowledgements of the obligations, waivers of defenses and releases of the lender. Forbearance Agreements would include these provisions but also contain more detailed reporting requirements, additional events of default, and assessment of forbearance fees, among many other terms specific to each individual loan arrangement.
These are not the only forms of agreement that a lender can utilize to protect its interest during these uncertain times, but are the most common. Our workout, creditors’ rights and litigation attorneys at Hackett Feinberg P.C. have negotiated and drafted thousands of deferment and forbearance agreements on behalf of lenders throughout New England over the past 40 years. We are here to offer lenders the benefits and efficiencies that come from these years of experience.
You can contact any of our workout, creditors’ rights and litigation partners at (617) 422-0200:
Richard Gentilli (reg@bostonbusinesslaw.com)
Brian Plunkett (bfp@bostonbusinesslaw.com)
Jonathan Hixon (jmh@bostonbusinesslaw.com)
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