Hoosier Banker 33 2. Loan renewal or forbearance agreement – During the recent commercial real estate recession, lenders quickly utilized forbearance agreements; however, the “renew and watch” attitude that exists in the annual farm loan cycle causes lenders to fail to take the actions to protect the lender that would have occurred as part of a forbearance agreement. These steps include a loan document review and audit mentioned above, cross-collateralizing loans, obtaining additional collateral, obtaining a release of borrower claims against the lender, etc. 3. Issuing proper notifications to buyers of crops and livestock – The UCC and the Federal Food Security Act treat security interests in crops and livestock differently than equipment and other items of collateral. Unless certain steps are taken, the borrower can sell crops and livestock free of the lender’s security interest. That is, the buyer obtains the crops and livestock free of the lender’s liens, unless the lender has provided the buyer with a notification of its security interest and lien. At the request of the lender, borrowers are required to provide the lender with a list of those entities (buyers) to whom the borrower will sell its crops and livestock. Lenders need to obtain a list of buyers of crops and livestock from their borrowers and send appropriate notices to the buyers. (The UCC was modified in 2002. Many lenders have not reviewed and updated forms since the 2002 amendments). If the lender fails to send out these notices, the borrower could obtain crop proceeds and pay all other expenses before it pays the lender. In this circumstance, the lender, rather than being treated as holding a first lien, will only receive whatever is left over after all other creditors are paid. 4. Steps to avoid lender liability – • Have the borrower execute a prenegotiation agreement, which clarifies that no agreement is reached until it has been reduced to writing; • Make certain that the borrowers understand that the loan officer cannot, on his or her own, make a renewal decision or offer loan terms; • Do not take actions that induce the borrower to put other creditors at risk or take advantage of other creditors; • Provide borrowers with information – let the borrowers make the decisions, and communicate with your borrower early and often; • Be aware that when the borrower has no other good or viable options, the borrower’s next option will be to sue the bank; • Use a forbearance agreement with a release of claims provision. 5. Workout tips – • Communicate, communicate, communicate; DiD you know… for 23+ years WE’VE SUPPORTED COMMUNITIES… • $3.5B+ in community impact • 58 housing tax credit equity funds under management • 300+ community development loans extended totaling more than $350M • 650+ housing developments under asset management (over 39,000 affordable apartments) • $400M+ of NMTC allocation under management • 81,000+ jobs created and/or retained • 97,000+ low-moderate income individuals provided with quality, stable, affordable housing NURTURED PARTNERSHIPS… • reLIaBLe on-time investor reporting • eXCePTIoNaL portfolio management; never called capital from investors above original commitment amount • foLLoWeD THroUGH oN CoMMITMeNTs meeting or exceeding IRR targets since inception DID yOU KNOW? [ formerly GREAT LAKES CAPITAL FUND ] Cinnaire is a full-service CDFI partner that supports community stabilization and economic development by developing and nurturing partnerships with investors and mission-focused organizations. We provide creative loans, investments, and best-in-class services to partners. cinnaire.com | 844-4CINNAIRE
RkJQdWJsaXNoZXIy MTg3NDExNQ==