While a lender can use their resources to outlast a borrower and recover the legal fees during litigation, both parties can lock themselves into a waiting game. The greatest way to maximize loan recovery is to reduce the time to recovery or to quickly move out of the current case for a better position later. Time is money, but more importantly, money is money, and a bit of strategy beforehand can reduce both. Below are 4 legal strategies to maximize loan recovery.
1. Strategic Loan Recovery: Reducing Time and Maximizing Returns
When issuing the loan, conduct a comprehensive assessment of the borrower’s financial health, credit history, and collateral. Each strategy for recovery should be customized to the individual borrower. Along with helping to identify potential risks and setting appropriate terms, this information will be disclosed in litigation, will make the borrower aware that the case will not be pleasant, and will be useful in planning a strategy for maximum impact.
A strategy requires tactics to be achievable. It is important to know what the borrower is focusing on, what they are being evasive about, and how to maximize pressure quickly. Understand various strategies including bankruptcy which is always a consideration if the entity is a single-purpose entity with little assets other than a reserve.
2. Shift the Focus: Addressing Unexpected Claims in Litigation
Require a thorough examination of all claims, even claims that seem secondary. For example, a borrower may sue over a threatened foreclosure or a payoff demand and often will include a throwaway allegation of emotional distress damages, hoping to gain the sympathy of the jury. Instead of overlooking it, address these claims directly and require them to provide clarity.
Along with direct written discovery, third-party subpoenas for medical records and short depositions of their providers can both cut claims down and get the plaintiff to a more reasonable settlement posture. A short deposition of the physician can be more effective than a lengthy deposition of a plaintiff making broad, unsubstantiated claims. This commitment to a fair and in-depth review of all aspects of the claims can encourage a more thought-out approach to litigation.
3. Legal Leverage: Using Writs of Attachment to Secure Assets
When there is no secured physical property (such as litigating a guaranty) seek a writ of attachment to secure real estate, personal property, and financial accounts of the defendant before the final ruling on a case. However, this claim must be for a “fixed or readily ascertainable amount” greater than $500, and for a person, must be based on conduct “of a trade, business, or profession.” (Code Civ. Proc., § 483.010.) Â
To achieve the attachment, it is often better to argue extremely conservatively the minimum that could be achieved at trial to attach as much as possible and once the personal assets are secured, then the lender can switch tactics to wait out the case and force the borrower to come with a better resolution.
4. Know Your Loan Agreement: Maximizing Loan Recovery Through Preparation
Know the loan agreement better than anyone else. A lender who can quickly identify the terms and the issues that will arise will save time and money in explaining them to a borrower, to counsel for a borrower, to their counsel, and if needed, to a judge. It is important to have clear, detailed, and internally consistent loan agreements. The terms, conditions, and consequences for a default should be outlined but more importantly, there should not be variations in wording. Instead of only seeking the collateral or repayment, alternatively suggest a new agreement – increase the interest rate, extend the balloon payment, put in a new guarantor, or tie in additional collateral.
How Geraci LLP Can Help Strengthen Loan Recovery Efforts
By following the above strategies, lenders can position themselves for more effective and efficient loan recoveries. Our Litigation & Bankruptcy team has the experience required to help lenders maximize loan recoveries and protect investments. Our attorneys can provide legal solutions tailored to your business to mitigate risk, streamline loan recovery efforts, and secure optimal outcomes.
If you’re currently facing difficulties with a borrower or need guidance, contact our Litigation & Bankruptcy team today.
