Pub. 10 2020-2021 Issue 2

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S — H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S September • October 2020 13 Withnowaytopredictthepandemic’slength or impact on borrowers, lenders would do well to act cautiously pessimistic: hope for the best but prepare for the worst. What follows are proactive checklists to prepare for problem loans, defaults, lender liability litigation, and other events we hope won’t happen — at least not on a massive scale. Being Proactive in Tricky Times BY SCOTT C. SANDBERG, PARTNER, SPENCER FANE LLP T he COVID-19 pandemic’s first sixmonths have proven predictably unpredictable for banks. PPP and other government assistance programs might have temporarily staved off widespread loan defaults, but they foisted unique challenges on the banks charged with disseminating relief funds. And new PPP-related legal challenges for banks have begun rearing their heads. Bankruptcies have spiked, but foreclosures have remained stable relative to previous crisis periods. Financial markets have enjoyed record growth, while unemployment has skyrocketed. With no way to predict the pandemic’s length or impact on borrowers, lenders would do well to act cautiously pessimistic: hope for the best but prepare for the worst. What follows are proactive checklists to prepare for problem loans, defaults, lender liability litigation, and other events we hope won’t happen — at least not on a massive scale. Identifying Problem Loans Consider whether action needs to be taken on loans with one or more of the following issues: • Uncured monetary or nonmonetary defaults • Uncooperative or hostile borrowers • Borrowers involved in lawsuits or with other legal problems • Borrowers in volatile business sectors • Diminished collateral value • Competing claims to collateral Prepare a problem loan “plan” that includes: • Measures the bank will take to resolve the problems • The bank representatives who will communicate with the borrower, and the means of communication Workout Arrangements • Document all workout arrangements with signed written agreements • Determine the preferred workout agreement structure (e.g., forbearance agreement, deed in lieu, modified loan agreements, restructured collateral) • Obtain a release from the borrower of claims against the bank in exchange for the workout arrangement continued on the next page