Forbearance Agreements 101: What To Do When Your Borrower Can’t Pay

Melissa Martorella, Esq.:

Hi everyone. Thank you for coming to today's COVID-19 series webinar. Today we'll be discussing forbearance agreements 101, what to do when your borrower can't pay. Today you have myself. I'm Melissa Martorella. I am an associate on the transactional team here at Geraci, along with Nema Daghbandan. He's one of the partners at the firm and on the transactional team. Traditionally, our day-to-day job consists of advising lenders across the country how to make loans, provide loan compliance, as well as preparing loan documents in all 50 states. However, in times like this, we can also assist with advising our clients what to do when a borrower defaults how to properly draft a forbearance agreement or modification agreement and assist them through foreclosure or other workouts of their loan.

Today - here's a little agenda for you. The first two are really recaps of a webinar that Nema assisted with last week, but it'll help set the tone for today's webinar, really understanding what's happening in the marketplace with regards to forbearances, and also understanding how to evaluate a forbearance request when you get one from your borrower. After that, we'll be jumping into how you should be communicating with your borrower when you agree to enter into a forbearance agreement. Along with we'll be providing you with detailed best practices when you're actually preparing that forbearance agreement. So making sure that you include the correct terms in there to make sure that you're well protected. And then we will end this webinar with a Q&A.

Nema Daghbandan, Esq.:

Great. So before we jump right in here, I want to do a couple of housekeeping reminders as we always do on these. So the first thing is that this webinar is being recorded. It will be distributed after the meeting. So for those of you that want to know whether you can get a copy of the slides or a copy of the presentation, it will be available for you shortly after this webinar concludes. All of you are attendees on this webinar, and so as an attendee you should have three different boxes that are sitting at the bottom of your screen. One says chat, one says Q&A and one says raise hand. The best way to communicate with us is to use the Q&A box in the Q&A box. You can type in any question that you want. You can enter it anonymously if you like, or you can enter your name if you like as well.

At the end of the presentation, we have allocated time to go over these questions and we'll take as many questions as we can, but we will be answering questions in real time. Feel free to enter those questions at any time you want. You don't need to wait till the very end. So if you've got questions as they come along, feel free to enter them at any point going forward. But again, the best way to communicate is going to be using that Q&A box and we will forward a copy of this entire presentation shortly after we conclude here today to frame what's kind of happening right now. And the reason for this particular webinar is there's effectively a significant default crisis occurring in real time around us. So I don't know if any of you were able to catch, but the Wall Street Journal recently published an article that got a lot of fanfare about how one third of renters did not pay on time in April.

There was a little fear in doom in there unnecessarily when you actually start parsing through the statistics that actually sit behind that. And in reality, there's typically about 15 to 20% of people that actually don't pay on time in any given month. So while there was a larger number of people who did not pay than normal, it is not truly one third of society not paying at all. So we'll see where the numbers actually shake up. But regardless, we know that there's an uptick in people not paying their rents. When people don't pay their rents, that means a landlord can't pay their lender. When the lender doesn't get paid, they can't pay their lenders and so on and so forth. So we know that there's a forbearance crisis occurring around us. The second thing is we also know that there was a significant number of unemployment.

So I don't know what the figures are of today, but as of recently, we were at least 10% unemployment nationally. So significant increase in unemployment, which will also significantly increase the request to not pay your lender for your mortgage payments. And the last piece of data here that kind of key up is data from the Mortgage Bankers Association, which was prior to Covid. The number of loans that were in forbearance was one fourth of 1%, and as of last week we are at a total cumulative average of almost 4%. And when you parse the data back one step further, it's a little over 4% for effectively non-bank lenders such as yourselves. And then it's three point 60% for actually depository institutions. So about a 4000% increase. And I think it was an expectation particularly going into may that these numbers will dramatically increase as well.

So last week for those of you that were able to join us, we discussed and had a best practices meeting in conjunction with the American Association of Private Lenders. And during that meeting we basically provided the best practices for a mortgage lender. Talked about how for borrowers who are directly affected by COVID-19, either from a loss of compensation or rental income or otherwise, you should be very generous with these borrowers during this time period. And the purpose of this webinar in contrast is assuming you've actually agreed to enter into a forbearance, what are the terms of the forbearance? How should you approach a forbearance agreement? What are the mechanics of a forbearance agreement to really get into the weeds of the preparation of the underlying document versus whether you could or should? But let's just recap kind of what happened on the call last week for those of you that weren't able to attend, and this will be a good refresher for those of you that were.

So first is, as a matter of policy, should you actually offer a forbearance if your borrower calls up and request a payment deferral because they can't make payments, should you do it in the first place? We distributed a form during that call. We'll distribute the exact same form this week. We highly recommend that you put this form up on your website and it's basically a request for forbearance form. If your borrower calls up and says, Hey, I'd like to request a payment deferral, our recommendation is that you provide this form to your borrower. They can submit a formal request and provide backup documentation. If you can confirm that your borrower has submitted a bonafide request, you can verify the statements they're making are true. So they in fact do have a hardship. It is covid related. We recommend you are very generous to this power base for a variety of reasons.

One is we know that there's going to be a regulatory day of reckoning to come from all of this. So in the Great Recession we had two huge pieces of legislation. The first one was the Dodd-Frank Act, as many of you're aware. And the second was the SAFE Act. These are two pivotal pieces of consumer protection regulations that actually affect business purpose lenders and commercial lenders nationwide. So we know that once the dust settles here, there will be a regulatory reckoning. And the key here is the more responsible as an industry we can act, the less likely we will be in the crosshairs of significant regulations. And the second aspect of this is that a lot of regulators, so for many of you that are listening on the call, you are actually a regulated lender. You might be here in California with a California Finance Lender's license.

You might be in Arizona with a mortgage banker or mortgage broker license. A lot of you may actually be regulated parties. The regulators to a great degree have come out and said, we request that you enter into these forbearances. Most of 'em are not demanding it, but they are requesting it. And when a regulator requests you do something in quotes, you can kind of read between the lines. And that's not to say that you have to offer it to everybody, but it's to say that if you have a blanket, no policy, the regulator could provide some consequence to this when the dust settles.

So when thinking about these sorts of requests, the big issue that you want to think about here is this is the time for you to maintain your formalities and in fact it be more vigilant about your formalities. Recently I've been fielding a lot of client requests where they're stating, oh, by the way, I'm having a hard time getting ahold of my borrower. They can't sign it. Can I use DocuSign And all of these things to kind of reduce formalities during this time period? And that's, it's smart and I can appreciate why people are feeling this way. But knowing the lessons from the great Recession, what ended up happening is we were basically monitoring years worth of litigation. And the most common theme when you read through the narrative in this litigation was that the lender effectively was not or was offering a modification, but there was some written trail.

But what the borrowers were accusing the entire time in this litigation was I called my lender and I spoke to someone and that person promised me the moon, the stars in the sky. And there's no written evidence that the person did not do that. There was no follow-up letter. There was no follow-up email. There was no follow-up communication stating what actually happened during that call. And so as a court they're going to say is, well, I can't disprove what the borrower's saying. And what that means is I'm not going to kick out this lawsuit because it looks on its face that it doesn't have merit because at the end of the day is that there was a modification or there was finally some sort of communication. But I don't know exactly what happened in that time and I need to give this borrower the benefit of the doubt.

And so this lack of formality really extended litigation unnecessarily for a ton of lenders. And so right now is the time to be extra vigilant. When you are getting these requests, you should document everything you're doing in writing, sending at least an immediate follow-up email, reciting what happened during our conversation and whether you are agreeing or not agreeing to do anything at that juncture. So I usually use words like we are not waiving any of our rights under the loan documents when I end those sorts of emails. And the second thing is you should be follow the formalities of your loan documents. So most loan documents say that the documents cannot be modified unless they're in a writing signed by the parties. And so I usually restate that same statement, but loan documents also state that when borrower and lender are to communicate with one another, there is usually a physical address listed in the loan documents and it states that form notice to be effective, you must be sending notice to that address. So in addition to any sort of email that I would follow up with, we also say is go ahead and follow up with a written letter to the address of the borrower to make sure you have a very clean litigation record.

So next part here, and this kind of ties up where we left off in our last webinar, dealing with whether you showed for betterer. So assuming that a borrower submits a formal claim that provides you backup documentation affirming their losses directly related to covid, then our recommendation is a payment deferral somewhere between 60 to 90 days automatically because that's probably the minimum window. In addition to that 60 to 90 day payment deferral, we recommend that the lender can automatically extend that period so that you're not entering into a forbearance agreement after forbearance agreement after forbearance agreement, but really just one agreement that you could enter into at that time. And then you could provide follow-up letters saying we are going to go ahead and extend the window further versus entering into further agreements. In addition to that lender discretion, we recommend that you do not have any late charges or default interest on those deferred payments.

Also, there's no capitalized interest accruing on those payments as well. And so those are really the best practices that I think our industry can offer right now. Similarly, if a loan is going to mature, you don't technically extend the maturity date that would require a formal extension or modification agreement, but instead you agree that you're not going to foreclose even though they hit the maturity, right? These are the sorts of things that you want to do is basically we're going to let you defer payments including potentially the maturity when that arises. And so the recommendation on a bridge loan is that you would defer these payments until maturity. So let's just give you a really simple example. If the monthly payments were a thousand dollars a month and you're going to defer three months worth of payments and the principal balance was a hundred thousand dollars, simple math would tell you 90 days of payments is $3,000.

So when this loan matures, borrower, you owe me $103,000. That's how it would look here. If this was a longer term product, it would make, for example, a rental product or any kind of 30 year type product, then it would make sense to have some sort of reinstatement period. So for example, using those same numbers, let's say it was $3,000 or a thousand dollars month monthly payments and they had a missed three months, give them a one year catchup period for next year. So in 2021, borrower, you need to make your monthly payments of a thousand dollars and you need to catch up throughout the year to repay that 3000 as well. So something that's manageable for your borrower as the recommended best practice for these people that are going to be in need and to make sure we're all talking about the same thing here. These are for business purpose loans. Consumer loans are hyper regulated. There are different sets of rules. I would not be applying the same sort of logic for your consumer loans and a lot of those consumer loans basically, if not an automatic forbearance, a pretty required forbearance for many, many consumer loans particularly that are federal or federally mortgage backed.

Melissa Martorella, Esq.:

So now kind of getting into the actual forbearance agreement itself, how should that look? What should you be including in that agreement? The first kind of thing that you'll see anytime you have an agreement or recitals, these lay out what is happening, who the parties are, what the agreements are that you're amending or referring to, and basically the facts of how you got to where you are today and why you are entering into that particular agreement. The recitals essentially tell the story of the parties and what's going on between them and in a forbearance agreement, you want to make sure that you come off as a knight in shining armor. You are the hero. This borrower needed help. They're going through some hard times and you as a lender came in and saved the day and said, you know what? I will work with you borrower.

Let me help you get through this trouble time. And the better you can draft or craft those recitals to paint you in the best light possible, that's really going to help you. In addition, some agreements can be very complex or complicated, but you really want to make sure you distill it down as simply as possible so that if this agreement ever got in front of a judge, that person would easily be able to understand how you got to where you are. Sometimes we'll review agreements and there's four or five, six pages of recitals, and by the time you get through it, you just have no idea what's happening or what you're even talking about as concise and as clearly as possible will be a great help to you in the event there are any problems with the agreement.

The next kind of thing you want to discuss in your forbearance agreement are reaffirmation. The first one is reaffirmation of the amounts due. So you want to have the borrower come in and say, yes, this is my outstanding principal balance. Here are some additional amounts that are due under the loan. Maybe they missed the payment a while back or they were late on one so there were late charges. There could be many different things underneath that loan that are outstanding. And you want to have the borrower reaffirm that those amounts are outstanding and due this way, there's no dispute down the line as to what was owed by the borrower at that point in time. Going along with that, the third bullet here is the itemization of those amounts due. So if you're saying that, Hey, borrower, you owe the outstanding principal balance a missed monthly payment and a late charge, also itemize those out and have them sign off on those amounts so that it's very clear that everybody knows exactly what is owed under the agreement at this time.

Finally, especially we're talking about business purpose loans here, we want to make sure that you also have your borrower reaffirm that this was a business purpose loan and that the proceeds were used for and continue to be used for a business purpose. It doesn't have to be anything fancy. It can simply be a paragraph that the borrower initials afterwards, but anything that helps you reaffirm to anybody down the line that this was a business purpose loan and not a consumer purpose loan will help you, especially as Nema pointed out, consumer loans definitely have a lot of requirements around forbearances right now in a lot of restrictions on what you can do with those loans. So anything that can help you in this moment to make sure that the loan was for business purposes will definitely help.

And then we get into the actual terms of your forbearance agreement. So what did you and your borrower agree to do here? First, you would want to outline what you're actually forbearing from Under the loan documents, you have a lot of rights as a lender, you could record a notice of default, you could charge late charges on the missed payments. You could accrue default interest on those monthly payments. As Nema stated, you're probably waiving going forward with all of those things during this forbearance period, and that's okay, but you want to make sure that you clearly outline that in the agreement so that everybody is on notice what your rights are and what you were agreeing to refrain from doing during this forbearance period. Finally, you're going to want to include in there, how long are you agreeing from forbearing from taking such action? So as Nema pointed out, 60 to 90 day payment waivers that are deferred until the maturity date is pretty common, but there may be some other arrangement with your borrower. What is that? Is it a three month forbearance? But the borrower has to make half payments and then the other halfs are paid over the duration of the loan rather than maturity, whatever that term is that you agreed upon with your borrower, make sure that that's well written out in this agreement. That way everybody is on notice again as to what you actually agreed into and everybody knows how to perform under this agreement.

Nema Daghbandan, Esq.:

So the next thing here is oftentimes when people will contact us and say, I want a one page agreement, right? That's probably the most common request I get. Rather it is a set of loan documents or if it's an extension or whatever, it's make it a one pager. And that was the purpose of this webinar was to really kind of go into it. Yes, the operative terms. So what Melissa just described, what are the actual terms? What are you forbearing from? Maybe very short in duration in nature, but realistically, these agreements are extremely powerful. We view our role primarily as transactional attorneys to try to prevent our clients from ending up in litigation and if they end up in litigation, we want to be able to have really strong documentation to support their claims to immediately defeat claims while they're there. So this is a big portion of this.

So in addition to those operative terms, this is also an opportunity for you to get some advantages from a litigation perspective. So specifically it you are giving your borrower something of great value, right? You're giving them the ability to not make payments during the time period. You can also extract things of great value during this time period as a mortgage lender. So one of the things that you can extract is what's called a general release of claims. And so there could be lots of instances that are either known or unknown to you as a lender. Were there servicing issues that may have happened somewhere in the loan? Were there may be some origination issues that happened anywhere in the loan? There's all sorts of issues that could have kind of popped up in your current lending relationship. And so you get a general release of claims, and that's a powerful weapon because if your borrower does try to sue you, let's say for example when maturity does finally come up and they're unable to pay, is this could be a huge weapon in your armory when it comes to any sort of litigation.

They come because effectively they've agreed to release you of defects all the way up to this point. The second thing is are you aware of any actual defects? So the general release is great for things that are not necessarily known to the parties, but there may be something where you realized in your underwriting file when you start going through it is, oh man, we're really missing something. So for example, did you have inconsistent terms, right? Did your note accidentally say 7% in one section, but 9% in another? Right? And the borrower has been paying you on this 9% this whole time, but in reality is you know that there's a little bit of a defect sitting in your underlying documents. This is a great opportunity to cure those defects. So anything that's actually known to you, getting them to specifically release any sort of claims related to that very specific issue.

So we've seen this with Truth and Lending Act claims. We've seen this with servicing issues, but really if there's anything that was known to you, and this provides an opportunity for you to go through the underlying loan file one more time and just say, Hey, is there anything that I would've done differently this time in getting that thrown into the agreement as well? The next thing here is you also have to say is in a forbearance agreement, there are certain things that you are waiving and there are certain things that you are not waiving. And so to a great degree is you want to make sure that it's unequivocal, which is which. And what I mean by that is we talked about the example of a payment deferral. That's great borrower, you don't need to pay for 60 to 90 days. That's what we agree to.

We are not charging late charges, we're not charging default interest. That's what we are waiving, but it's not a blanket waiver of everything. So for example, a borrower, you transfer the property out of your name to a new party. That's still a default under this, that the default under this forbearance agreement, and that was a default under the underlying loan documents. So making sure that, yes, I won't proceed with a foreclosure action if you don't pay me, but I will still proceed with one if there are other actions that happen. So we gave an example here of a transfer of the property, other creditors taking adverse action. So for example, this is really relevant. Let's say for example, you're in a junior position loan and the senior lender throws the loan into default. You need to be able to protect your interest in those circumstances if there's a seizure or repossession or some sort of adverse action to the property itself. If the borrower, if you find out that the borrower was committing fraud in this process, so they submitted to you their bank statements and said, look, I'm showing you, I've gotten nowhere wherewithal to pay you, but in reality you find out that, oh, lo and behold, they actually do have a ton of money if they make some sort of fraudulent statement, you want to be able to cancel that forbearance agreement. So making sure you have clear unequivocal events of default under the forbearance itself.

Melissa Martorella, Esq.:

The next thing you'll want to do is reaffirm the borrower's authority to enter into the forbearance agreement. And this kind of ties as well to the defects, maybe the preexisting defects that you might have known under the agreement that Nema just spoke about at a loan origination. You might've thought that Joe Smith had the authority to sign the loan documents on behalf of your LLC borrower, but then later on it turns out it might've been Joe and Jane Smith that had to sign. So this is your opportunity to reaffirm borrower's authority and either have both of them sign and then reaffirming that the loan was valid, getting a consent in particular that shows that Joe was the only one that needed to sign and can still continue to sign agreements now, but it's really a great time to clean that up. And going off of that, this is the time where you should be getting proper resolutions or consents. Maybe it was an individual borrower at the outset, but now they're incapacitated or otherwise can't sign, so they need a power of attorney in place. Make sure that you have all of those agreements so that whoever is signing this forbearance agreement on behalf of your borrower does in fact have the authority to do so.

Another tidbit of advice that we often provide to lenders here is to get a date down of your title policy. When you're entering into a forbearance agreement, you're not recording anything. The forbearance does not need to be notarized. You don't really need title. However, it is often very helpful to get this date down of the title policy because you can find out a lot about what's going on with that property. For example, you have taxes been paid the date down will advise you whether that's true. Did borrower record an additional lien against the property? That may be a default under your loan documents, and this is how you would figure that out. As Nema mentioned earlier, are you a junior lien holder and you're senior? Did they record a notice of default and maybe you somehow missed the notice of default? That's something that you want to know and be aware of. So getting that title policy date down, while it's not essential, it is something that especially if you have a more complex transaction or depending on the actual facts of your transaction, that may be very helpful to make sure that you know exactly what's going on at that property.

Another item to consider here, which seems like it should be pretty straightforward, but oftentimes it's not. Who is signing on behalf of your lender? There are a lot of options here, and it sounds straightforward, oh, the lender signs, but what happened between the time of origination and where we are now? Did you sell that loan to another party? If so, who is signing on behalf of that party? Did you retain a servicing agreement in place that allows you to sign for that party or does it not outline that? Is there a power of attorney that needs to be put into place and does that power of attorney even give you the authorization to sign a forbearance agreement or is it just to communicate with the borrower and to prepare payoff demands, you really have to look at the agreements that you have in place on the lender side as well to make sure whoever is signing on behalf of your lender is the correct party.

The biggest defect that I tend to see at this point is with servicing agreements. Oftentimes they will outline kind of like what we were saying, they can communicate with the borrower, they can issue payoff demands or reinstatement demands. They can reconvey the loan even at time of payoff, but sometimes it's pretty unclear as to whether that servicer can actually enter into a forbearance agreement with your borrower and in particular when the maturity date is at risk. So sometimes you'll see that the servicer can postpone payments or modify the loan in the payments under the loan, but it will say except with regards to your maturity payment. So if your maturity payment is June one and you wanted to give your borrower a 90 day forbearance past that maturity date, arguably you as a servicer cannot sign that document on behalf of that lender. So you want a more clear arrangement in that servicing agreement to make sure that you can sign on their behalf.

So that's just something to keep in mind there to make sure that you're looking at those agreements as well to make sure that the correct party signs for your lender. Then the last little helpful piece that you should be including in your forbearance agreement is a reaffirmation from your borrower that all of their provisions of the loan documents are remaining in force. So basically, while we have outlined certain waivers of our rights under these loan documents and we're allowing certain things to be changed during this temporary forbearance period, everything else under the loan documents is still enforced and is still valid, and making sure that the borrower understands and acknowledges and reaffirms that fact.

Nema Daghbandan, Esq.:

All right, so we're getting here to our Q&A period, and before we hop into Q&A, just a friendly reminder that at the bottom of your screen there is an option where it says Q&A. You can enter into any questions. Currently there are 10 questions sitting in the queue that we will answer and we'll continue to answer them as we proceed here. But feel free to start asking questions in this Q&A period. We'll just go in the order in which they receive. In addition, up on the screen, just wanted to highlight a few different webinars and educational series that we've got going on. So the first one that is up on here is loan syndications are making a comeback. How to take advantage of this trend in the market. So for those of you that are unfamiliar with the term loan syndication, effectively when you have more than one lender named in the loan documents, so you have two different parties or more than two different parties named in the loan documents as the lender, there are securities implications behind doing that.

And so our corporate insecurity attorneys here will be advising you about how to basically put more than one lender on the documents and all different structures that are available to you. But we know here listening to our clients that that's going to be making a comeback because a lot of capital until the capital markets comes back, if they ever do come back, a lot of people are pivoting back into these individual or really pulling a bunch of people into a single loan. The second one that's coming up on here is we've been getting a lot of compliments here at Ity and we really thank all of you for those compliments about how we are managing our marketing messaging during this time period. And we thought it would be useful to actually kind provide our client base and the attendees on here with just some of the tips and tricks we've learned along the way.

And so we will be having, getting ahead of the brand how to build your brand in the middle of this downturn. So hear from our own experts about how we've done it here, so hopefully it can impart some lessons for you as well. Continuing on the default series that Melissa and I have been working on. So we've been really active in dealing with these loan payment defaults and how to manage them. We had the best practices last week. This week. We talked about obviously about the forbearance and what goes into a forbearance. And next week we're going to be discussing, well, either the forbearance doesn't make sense because the borrower giving you an example, is the borrower doesn't actually have a hardship, right? They're just requesting payment deferral and they're refusing to pay you, right? So in this instance, you actually want to proceed with foreclosure, what to do, what to expect, timelines, processes, expectations.

So we'll be giving you strategies for maintaining an actual foreclosure or a default strategy. And then the following week, we just know from hearing from many, many of our clients that basically contracts of all varieties are under dispute, particularly as it pertains to the real estate world. Purchase and sale agreements are coming under attack because sellers are trying to force the buyers to continue to operate. Buyers are having a hard time getting financing. Buyers are trying to pull out, and this really happens with vendor agreements and the other agreement. We know that that contracts is a general rule or under assault. So our litigation team here will really be going over a lot of the breach of contract type litigation that you can expect to see, and that will be on May 7th. And then last but not least is we have Lender Connect. So traditionally we would host our conferences in live settings, and we're so excited for the day in which we can all meet together and shake hands and fist bump and everything else.

But until that happens, we still want to make sure that we are building community and having our virtual FaceTime. So we'll be having really a revolutionary concept on May 20th, and that's going to be our Lender Connect conference. So that conference really has two components. One, it'll look and feel similar to other conferences. There'll be an exhibitor hall, there'll be Zoom meetings occurring in that exhibitor hall where you'll be able to talk to software providers and accounting firms and other professionals about different things that can help you during this downtime. There will be speakers, so there'll be different rooms where you can listen to cutting edge speakers, talking about how they're maintaining their businesses during this crisis. And then in addition to that, there'll be significant one-on-one networking opportunities. So there's going to be built-in functionality where you can actually select people that you want to talk to and be able to do one-on-one face contact with them through a Zoom meeting.

So you'll have a little video conference where you'll get to continue to grow and hear from each other. One thing we've been able to experience with this is that the relationships matter so much in any way we can try to get people to virtually connect until we can physically connect is what we're trying to do here. And so that's what Lender Connect is about. So without further ado, we had 10 questions. We now have 27, so let's go ahead and start plugging away here. Alright, so the first question that I see in the queue is one borrower stopped paying from February one, borrower stopped paying from March, and I just filed a notice of default. Do I still offer a forbearance? And if so, how do I deal with the foreclosure? This is a really great question that we didn't actually bring up much earlier, which was in our last webinar that we did with American Association of Private Lenders, we really talked about what I would call pre covid related loan defaults and post covid defaults for our pre covid default.

So your February default, this really can't be something related to the pandemic, right? There's probably some other unrelated issue. And so we really recommended kind of staying your traditional course as you did. So if you can, there's nothing stopping you. And oftentimes we will be hosting a foreclosure webinar in a couple of weeks here, but oftentimes the filing of a foreclosure often starts another process. So it might be a loan forbearance, it might be a modification. Oftentimes it brings time pressure to your borrower, and so you start getting into another resolution about getting the loan to reperform. So if you want to offer forbearance, you definitely can, and similarly, you may be able to foreclose. So we'll go into great detail next week about whether you can or can't foreclose that. The law firm has been basically generating data in all 50 states about all of the various foreclosure restrictions throughout the country. Some states you can't foreclose, some states you can. It really would be a case by case basis. Melissa and my contact information or both of our emails are on the bottom of this screen, so feel free to reach out to us about your specific facts and your specific states and we can let you know whether you can even proceed with a foreclosure in your state.

Melissa Martorella, Esq.:

So then the next question that we have here is the loan was due on April one. Borrower is refusing to sign a 90 day forbearance, giving him until the end of June to pay the loan off. Is it out of line to file the NOD today? Assuming that this is in California, you could definitely record the NOD. Whether you can actually complete the foreclosure sale is a different story, which we will discuss next week on our webinar. But if you've been working with this borrower and offering them a forbearance and they refuse to sign it, then yes, it would be totally acceptable to record the notice of default at this time.

Nema Daghbandan, Esq.:

Next question here is what is the risk to the lender? Should they pursue a foreclosure trust deed sale in California? And how can you mitigate that risk as a lender? So what we want to make sure is that you don't have a blanket policy right now. I think that's the biggest risk that a lender can have, which is we just simply won't offer anything to anybody. We don't care what your circumstances are, particularly if you're a regulated lender and in California you probably are, right? You're either a real estate broker or alternatively, you're a California finance lender, and either one, the regulators are going to frown heavily when they're doing their audits next year on this issue about what you did during this time period. So the first thing is have a policy in place about how you're going to approach these issues. Like I said, we'll distribute a form after this webinar about a formal request form that your borrowers can use, but let's assume that it's not a meritorious claim.

And lemme give you an examples. The borrower is claiming that they have a hardship and economic hardship, and you request copies of bank statements to affirm it. They provide you the bank statements and lo and behold, they've got $50,000 and it's a $3,000 a month payment. While I understand that, they feel like they have a hardship, they don't have a true hardship, right? They've got a significant amount in savings there to cover this, and they should be paying you. And so if they refuse to do so based on those facts, then I would document in the file we refuse based on the fact that the borrower had sufficient liquidity to pay us, and that's why we proceeded. And in that instance, I would go ahead and proceed. It's really that extra layer of documentation that you're probably not used to, which is documenting why did I proceed with this file? And similarly, when you offer the forbearance, why did I proceed with this file? And this way you can show your regulator that, look, I was being methodical, and it's not just for regulations, also for litigation, right? Is this is all discoverable information and you want it to be discoverable. I was making conscious decisions all along the way about when to grant it and when not to grant it.

Melissa Martorella, Esq.:

The next question that we have, a loan was supposed to be paid off on April 10th, but it's still not paid off. Can I move forward with the foreclosure? So April 10th is definitely in the middle of this covid crisis, and it has been difficult for some people to refinance loans at this moment in time. That doesn't mean that this is completely covid related, but I would definitely probably reach out to your borrower, first issue, a demand letter, reach out to them about why they have not paid the maturity payment on this loan before you immediately commence a foreclosure action. That said, once you do, reach out to your borrower, figure out the facts and see whether there's any hardship. As NEMO was saying, as long as it's well documented in the file while you're moving towards the foreclosure, you could absolutely do so.

Nema Daghbandan, Esq.:

Alright, next question here is can you define the difference between a deferral versus a forbearance? Is there really any difference? So a forbearance in its form, in its core form is you have rights as a lender and you are choosing not to execute on those rights. So an example of that is the borrower is unable to make their monthly payments, the borrower is unable to make their monthly payments. You as a lender have a right probably to accelerate the loan and to record a notice of default or to file a judicial foreclosure action or whatever it, it's right, you have a right. And so the forbearance is you forebear from doing that, right? Right. You're going to provide grace and you're going to effectively temporarily waive a right. That's what a forbearance is. And so when a borrower requests to defer payments, that's just one form of forbearance that you are offering. So they go hand in hand. But a payment deferral is just one, right, that you can waive under your loan to, but it could be other things as well, right? So for example, you could defer, say for example, from building or starting construction and having a construction related default. There's lots of things that you could not require on your loan enough. There's lots of rights you could theoretically waive

Melissa Martorella, Esq.:

The next question. If the borrower doesn't request the forbearance, but they just don't pay and I don't have a website, should I offer a forbearance? I would definitely reach out to your borrower, especially given the current circumstances and the current economic environment. I would definitely reach out to your borrower and ask them what's going on and why they have not made the monthly payments and provide them this form to say, if you are interested in a forbearance, please complete the attached form and provide the backup documentation so we can evaluate. I wouldn't just let this kind of continue on because then there's an argument that you have waived your rights under the loan. And then also, I wouldn't just automatically put this loan into a foreclosure because you want to make sure that you're communicating with your borrower during these times.

Nema Daghbandan, Esq.:

The next question is, does the lender have a right to ask for financials on an asset backed loan in California? In the event they are asking for a forbearance, what financial information can the lender request? So in our webinar last week, we went over this in pretty great detail, but the form that we will distribute will also provide this. So effectively, what is the backup documentation that a borrower should provide? And to answer the initial question is, can you ask for this? Absolutely. I mean, if the borrower is requesting some sort of forbearance, you can absolutely require backup documentation that they provide to you. So I'll give you examples if the borrower and this will be in the forms, but let's say for example, a rental income property. An example of backup documentation would be, I want to see evidence that your tenant requested that they don't pay you, and I want to see your responses to your tenants not paying you. I want to see bank statements that demonstrate that you haven't actually been depositing any sort of monthly rent. So validating the information that they requested.

Melissa Martorella, Esq.:

The next question is, do I record a notice of default and enter into a forbearance agreement at the same time? You can. However, I would strongly recommend if you're working with your borrower on a forbearance agreement, that you wait to record that notice of default until either they default under that forbearance or the forbearance just doesn't end up going through. If you're in good faith working with the borrower on a forbearance agreement, it doesn't sound very good. Faith if you at the same time record a notice of default.

Nema Daghbandan, Esq.:

Next question here is can we modify a loan extension and loan modification agreement or should we start from scratch with a specific forbearance agreement? So a quick background of what's the difference between a modification and a forbearance? A modification is you are changing the underlying loan terms. A classic example is you're going to add, you're going to provide the borrower with more principle, you're going to increase the interest rate, you're going to decrease the interest rate. You're going to somehow change the underlying loan terms. That's a modification. An extension is just a form of modification. So the maturity date was this date, it's going to now mean this date. So you're changing the underlying terms. Or forbearance on the other hand, is a temporary waiver of rights, and therefore it's actually a fundamentally different form. Whereas a loan extension and a modification should get recorded in the county records, you should notify your title carrier and forbearance doesn't have those components. You're really just waiving rights as a lender for a temporary period. The forms that we use here at Geraci Law Firm are very different between the two, and you would absolutely want to use a different form.

Melissa Martorella, Esq.:

Next question, which is fairly similar or similar concept. Is it okay to include an extension of the loan in the forbearance agreement or should that be kept separate? Kind of as Nema alluded to? Those are two very different agreements, so we should definitely keep them separate. And also in the forbearance agreement, for example, say your maturity date is June 1st, but you want to give the borrower until July 1st to defer payments and also make that maturity balloon payment. I would not extend the maturity date with an extension agreement in that scenario. I would, as we discussed earlier in the webinar, use a forbearance agreement and state that you are agreeing not to enforce the maturity default on June one, assuming that the borrower by July one pays that full balloon payment along with any deferred payment amounts under the terms of the forbearance agreement at that time. When July one comes around and they don't make that maturity date payment, then you can proceed with foreclosure or otherwise. Or if you wanted to extend the loan at that time, that may be an option as well. But for those kind of temporary maturity date kind of extensions, it's really just a waiver of enforcing the rights at that time.

Nema Daghbandan, Esq.:

Next question here is if the loan is maturing and the borrower wants to extend the loan, the borrower has not extended their property insurance, can you pay for the borrower's insurance, which is less costly, or are you required to do forced place insurance, which would be much more expensive? So there's a lot of kind of unpacking this. So the one is effectively is, can I extend the maturity date through a forbearance was kind of partially questioned here, which Melissa just touched upon, which is in a forbearance you can agree not to start a foreclosure even though they miss the maturity, right? So you can agree not to file a foreclosure action and effectively agree to continue to accept payments post maturity without technically extending the maturity date. So that's the example of using a forbearance agreement versus an extension agreement. Alternatively, you could provide them with a modification agreement and extend the loan and extend the actual date.

But to get to your underlying question about insurance, which is you could really do either in a forbearance, right? So in a forbearance, let's say for example, is one of the conditions of a loan is that you maintain insurance the entire time of the loan. Your borrower may be unable to pay for that insurance. And so you can agree in either a forbearance or in a modification that you will not trigger an additional event of default due to their failure to pay and that you will pay for their insurance and you will tack on that amount due at maturity date or they'll have to pay, you can enter the terms about when that amount is due back to you and whether you're going to charge interest on those funds. So you could definitely pay for them and if you have a cooperated situation, it would make sense to pay for their insurance because as you've already noted, it's much more expensive to get forced place insurance.

Melissa Martorella, Esq.:

The next question that we have is, is Geraci drafting out of state forbearance agreements? Yes, we can draft a forbearance agreement in all 50 states just like we could for a modification, extension agreement, loan documents, anything like that. So if you have an out-of-state loan and you need a forbearance agreement, we can absolutely assist. Feel free to email us and we can get going on that.

Nema Daghbandan, Esq.:

Next question here is do I offer the extension of the payoff date and the forbearance? We touched upon this a little bit. So the key here is that you're not actually extending the date. You're just agreeing not to start any sort of foreclosure action, even though they've missed the maturity date if you're going to be using a forbearance option. So you'd simply state the maturity date of this loan is May one. We are going to agree that you can continue to either pay my monthly payments past May one for a period of 90 days, or I'm actually going to agree to not even require any sort of payments during that 90 day period at all because hopefully the market's open back up and you can sell your property at a normal sale, and that's how we'll get paid off. So you're not technically extending any forbearance agreement, but you're agreeing not to take any action for our period of time.

Melissa Martorella, Esq.:

The next question, can a forbearance agreement be declined because taxes aren't paid? So one of the conditions precedent to entering into a forbearance agreement that we typically recommend are in place is one that taxes are paid current, and two, that insurance is paid current. That said, it might not be possible for your borrower at this time because of any ongoing hardship. They might be behind on their taxes and they're unable to pay. You could build into your forbearance agreement that the borrower has to bring the taxes current by a date certain, and if they don't, then it's a default under the forbearance agreement. You could also, I mean, I guess technically you could decline the forbearance agreement on this because the taxes are unpaid. That said, I probably wouldn't do that. Taxes in order for them to go to a tax sale and really actually harm your lien position, typically take several years. And if your loan is going to mature in a few months here, I dunno, the likelihood that them not paying those taxes really affects you and really does harm to your lien interest is pretty low in comparison with the immediate need of that borrower that needs help on their monthly payments. And I think if this were the only reason you were going to decline the forbearance agreement, it may paint you in a little bit of a bad light because what is the true harm to the lender in this situation?

Nema Daghbandan, Esq.:

Right. The next one here is, can the agreement include any remedies if the borrower does not pay at the end of the forbearance period, such as handing over the keys? It's a really good point that we didn't bring up earlier. So yes, so you in theory, you could have a forbearance agreement, which also includes what we would call a deed in lieu of foreclosure that are done at the same time. I don't know if I would use that sort of remedy right now if it was a covid related default because it was covid related. I just think that there's, we've talked about earlier, there's a day of reckoning, right? As a society, we will come out of this and there will be lots of legislative action, there will be lots of regulatory action. And so I think as an industry and to advise clients right now is this is a time to be generous to those that were harmed and did nothing wrong.

And so I think that to a great degree is we just have to be very careful about entry. But otherwise, then, in a normal marketplace, oftentimes when we were negotiating forbearance agreements, oftentimes we weren't including deeds in lieu or other mechanisms because particularly if the plan of action was the borrower was going to sell the property, there was kind of one of two approaches. One we would say is, let's agree now on price concessions down the road that you have to agree upon. And if those price concessions don't work, then let's just really do a hand over the keys because effectively it is the same net result borrower, why be forced to proceed with a foreclosure and go all the way down the road when in reality we kind of both see the writing on the wall? So that was definitely a strategy we used before.

Melissa Martorella, Esq.:

Next question. Will this PowerPoint presentation be available after this call? Yes, it will. We'll be sending a follow-up email to all attendees with the slides with a recording of this presentation along with some of the materials that we talked about earlier.

Nema Daghbandan, Esq.:

Alright, next one here is when we snail mail default or balloon letters to the borrower, do we need to keep a proof of mailing? So yeah, the short answer is yes. I mean, effectively is when you read the loan documents that you're using, there's usually a section that's called notice. And then when you read the notice section, it's got a bunch of legalese sitting in there and it talks about when do we effectively send something to one another? Right? When is notice received? And so sometimes it'll say is if you deposit in the mail, is it three days after that? If it's FedEx, it's the next day and it'll go through all these different mechanisms about when has the other party been notified by the other. Our recommended best practice here, for those of you that are going to be doing this, is send a letter. If you're going to send it snail mail, send it both certified and non-certified, because right now whether they can get certified mail is kind of up in the air. So send both ways and then keep detailed records of when you do send mail. So basically get a proof of mailing. Lots of websites are available like stamps.com. There are other resources that will actually include a proof of mailing. What you want to make sure is you've got strong documentary evidence for litigation to the degree that ever comes with that.

Melissa Martorella, Esq.:

Next question, what are the guidelines on how to determine if a borrower request is valid in order to prevent borrowers from simply trying to take advantage of the situation? So we definitely discussed this a little bit at the beginning of this webinar and on previous ones, but what we'll be providing you is a form that you can either include on your website or provide to your borrowers when they're asking for forbearance. That requires them to provide certain backup documentation based on the reasons that they're saying that they can't pay. And based on that, you can evaluate the supporting documentation review to see if it makes sense or is consistent. And if it does, then by all means proceed with that forbearance if it doesn't document that in their file to explain why you're denying the forbearance and proceed with a notice of default or other foreclosure action.

Nema Daghbandan, Esq.:

Next question here is, are there any considerations for the agreement if a loan has a fund control agreement where all scheduled draws have be completed? So I'll answer this question a little bit more vaguely initially, which is, how do you manage this or forbearance when you have some either no construction funds have been provided, some construction funds or in this instance, the question are asked here is all of them have been dispersed. First is back into, Melissa talked about this at the beginning of the presentation, which is a making sure you affirm any sort of balance in your accounts, right? Have an actual itemization of interest, holdbacks and construction holdbacks or anything else. This would also be an opportunity to say we both agree that all funds have been distributed. It would be a great opportunity to make sure that the borrower firms, that all construction was done in a workman manner. There's no mechanics liens getting some additional affirmations at that point, but the key here is let's assume that all schedule draws have been completed. The next rule question, is the property going to be up for sale? Do you want to agree upon mile markers to put it up for sale? Are you going to give them a certain window where they're not, where they don't need to try to sell the property? Now that you've got a completed construction project, what are the next steps between the parties?

Melissa Martorella, Esq.:

This next one looks like it was a carryover from a different question. So then moving on, please let me know exactly what is your loan syndication webinar. If you can see the screen below. This is on Wednesday, so in two days from now at 11:00 AM Pacific, we will be having our loan syndication webinar and our follow-up email to this webinar will have the registration links for all of our upcoming webinars.

Nema Daghbandan, Esq.:

Next question here is how do you document the forbearance? If the forbearance period extends beyond maturity date? Do you establish a new maturity date? And the key here is that you're not establishing a new maturity date to establish a new maturity date. You would have to do that through a modification agreement specifically through an extension. What you're doing here is you're agreeing to let a maturity date go by. So let's say for example, maturity date was may one, you're letting may one pass without triggering a new event of default. So you're basically saying, I'm going to let two events of default occur at the same time. Let's say for example, the borrower can't make any payments of any kind for 90 days and their loan's going to mature on May one. You're really waiving two defaults. One is for the failure to pay the balloon, the maturity, and additionally to continue to make monthly payments. So there's really two colliding defaults. So you're waiving those two specific ones and you'd outline that I'm not going to proceed with any sort of foreclosure action, and even though you are unable to make payments during this time period.

Melissa Martorella, Esq.:

Next question, how do you suggest a lender deal with making the borrower responsible for paying the legal fees associated with drafting the forbearance agreement requested by the borrower? This it's a great question. What I would include in the agreement is a section that states that all fees and costs associated with the drafting of this agreement, whether it's legal fees, if you did get a date down of your title policy and that incurred a fee, if there are any other fees or costs that are associated with this that the borrower is responsible for those, the borrower may not be able to pay those at this time. So you should, as a lender, pay your third parties that are all associated with getting this document done, but make sure that it's clear in the agreement that the borrower is responsible to pay all of those fees at the time of the expiration of the forbearance, whether those are deferred until maturity or at the end of the forbearance period.

Nema Daghbandan, Esq.:

And in the similar vein as that last question, but I'll provide a little bit of a different commentary on is can we or should we assess a reasonable fee to prepare the forbearance agreement or to pass along the cost of closing of the date down or any sort of cost? So Melissa already touched upon can you do it? The second thing we didn't really discuss here but is dealing with the actual fee. So for covid specific requests, we generally recommend to not charge any sort of, call it forbearance fee. So in the past we'd oftentimes charge 1% or whatever there'd be some kind of lender fee associated with the forbearance. For this time, our recommendation is to not actually charge any lender fee, but you're probably going to incur other fees. So for example, if you're going to hire our law firm to prepare the forbearance agreement, we're going to probably charge you somewhere between 500 to $2,500 to do it. That fee your borrower may be unable to pay, but it's still due. So the lender typically pays the fee and it is tacked onto the loan itself. So you can definitely make them pay the fees even though they may not have the wherewithal to pay them. Now, it's definitely something you can add to the actual loan balance.

Melissa Martorella, Esq.:

This next one we discussed a little earlier. It's asking about including a deed in lie into the forbearance agreement, which we previously discussed that prior to covid, that's something that we would've built in, but during the covid crisis, that's not necessarily something that you should be including in your forbearance agreements.

Nema Daghbandan, Esq.:

Next question here is if a notice of default is recorded and then a forbearance agreement is signed, can we leave the notice of default in force and leave it open and for how long? The short answer is yes. So if you can enter into a forbearance agreement after you've recorded a notice of default, and when you think about the forbearance, it is a waiver of rights. So what you're waiving now is you're not going to proceed with a sale of the property, right? You're not going to record a notice of sale or take the next action in the foreclosure action. That's the right you're waiving. So oftentimes, especially in states like California, Arizona, or other states that've got these 90 day windows roughly between recording a notice of default and recording a notice of sale is we don't want to have to start the whole process all over again, right? At the end of the day, we likely want to be able to proceed. So say for example, the borrower default under the forbearance agreement, I don't really want to report notice of default. So oftentimes we will leave the notice of default in the record. We just agree not to take the next action in the foreclosure.

Melissa Martorella, Esq.:

I am a private individual and purchase my loans through a broker. I'm not a member of any organization which rules apply to me. I hold and service my own loans. So I probably need a little bit more context. If you want to reach out to us via email, we can probably dig down into your specific scenario. That said, I'm going to just assume that you're making loans in California. You are not a licensed lender, but there is a licensed broker arranging that loan transaction to you in that case, and assuming that these are also business purpose loans. In that case, there are no restrictions on what you can do right now. You don't have to avoid foreclosure. You could take whatever action you wanted under your loan documents. That said, we still recommend for best practices that you offer up a forbearance to your borrower on the terms that we've recommended. If they're unable to pay, that you evaluate each request for forbearance in a similar method by using the form that will provide, and that if you do proceed with foreclosure, it's definitely possible here in California at least to start the process, but that it may not be able to complete it. So if you'd like to reach out to us, we can probably assess the actual circumstances that you are dealing with a little bit more specifically.

Nema Daghbandan, Esq.:

Next question here is can we insert verbiage that the forbearance is voidable if the borrower qualifies and accepts funds from EIDL or PPP? So these are the SBA programs that we're going to provide relief to participants who request these loans. So I haven't actually heard this particular question come up. I have heard of requiring a borrower to apply for these programs as a condition to enter into a forbearance, right? So showing some affirmative action to try to get some sort of government relief. I don't know if I would make the agreement, but I think you could very likely saying if you receive funds from these programs, then I do want at least a partial payment of my loan because your liquidity crisis to some degree has been solved. So I think you could definitely have a component of if you receive these funds. So one is I require you to apply for this, and two, if you receive the funds that you need to make some sort of concession or payment under my loan.

Melissa Martorella, Esq.:

Next question, what if you feel the loan is high risk and the borrower payment record hasn't been on time? A forbearance would risk the lender's capital. So in this case, we kind of talked a little bit about this, but we've definitely discussed it in other webinars is how do you determine if this is a valid COVID related request for a forbearance in this situation, it sounds like your borrower has consistently been late on payments or has missed payments. In that case at time, it's likely unrelated to covid that they're unable to make their payments on time. In that case, you could, we still recommend reaching out and doing a demand letter to them, seeing what's going on, but you could absolutely move forward with other enforcement rights like a foreclosure.

Nema Daghbandan, Esq.:

Next question here is can I ask for the borrower's, tenant's contact, work info, etc to verify that the tenant really did or did not pay rent? So in most loan documents, you'll see a provision there regarding what's called a tenant estoppel. So effectively a lender can demand from their borrowers that their tenants provide what's known as an estoppel, and estoppel typically is used at loan origination and you say, my monthly rent is X dollars, my security deposit is Y, my lease is in full force and effect. So that's usually the contents of an estoppel. I would generally not recommend that you demand the contact information for the tenant, but I think it would make sense to saying it's great. I want you to have your tenants complete these estoppels affirming that they are not making payments so that you have a secondary validation of what your borrower is stating to you.

Melissa Martorella, Esq.:

The next question we have is if a borrower technically has the funds to pay, but they need to use those funds to pay employees and operating costs for their business and they do not have funds coming into their business, would you consider that hardship enough to recommend a payment deferral? And again, this kind of goes into evaluating their reason for requesting the forbearance and seeing if that adds up. So if you go through and you see what they have in current funds, but they have to make payroll next week and you see their accounts payable and you know what bills they have outstanding, it may make sense that actually yes, there is a true hardship here and they're not going to be able to pay you in order to keep their business operating. And if that's the case, then it may make sense to offer that payment forbearance.

Nema Daghbandan, Esq.:

Next question here is if there are previous known defects in the loan documents at loan origination and the borrower asks for a loan forbearance, would it make sense to redraw the loan documents and to make a new loan documents? So refinance my old loan because I knew that there was defects? You definitely could. There's nothing wrong with that approach. I kind of like the forbearance as probably a better alternative because not only are you dealing with the issue in the forbearance as well, but you're also getting them to knowingly waive rights against that. So let's say for example, you instead do a refinance. It doesn't mean your borrower doesn't still have rights under the previous loan and that they weren't harmed under the previous loan. So I like the forbearance because it gets them to knowingly waive those rights.

Melissa Martorella, Esq.:

Next question. If the borrower offers partial payments four months, what document do I use? A loan modification or something else? You can use the forbearance for this. So we have a bunch of different options as far as what the terms of that forbearance may be. If there's a total hardship, it may make sense to defer the entire monthly payment until the maturity date, but maybe it's a partial hardship. And if say the monthly payments due to you under the loan are $5,000 a month, and the borrower says, Hey, I just can't make five grand a month right now, but I can pay 2,500. You can build that into the forbearance agreement to say, Hey, for the next four months, borrower is going to pay $2,500 per month, and then the remaining $2,500 a month that was due each month is going to be deferred until maturity. You can absolutely draft it that way as well. So you have a lot of options to be really creative under a forbearance agreement and cater it to exactly what the borrower needs from you.

Nema Daghbandan, Esq.:

Next question here is if the borrower did not pay property taxes, can we ask or demand the borrower to pay property taxes before entering into a forbearance? And yes, you could require it there. Oftentimes in a forbearance or other agreement, we would include what's called conditions precedent. So before I enter into this agreement, you have to meet these following conditions. So you could definitely do so. I don't know whether I would blow up a forbearance based on it right now, particularly in a state, let's say a California where you've got multiple years before a tax fail could occur, but nonetheless, you could make it a condition precedent.

Melissa Martorella, Esq.:

The next question is what is the cost to draft a forbearance agreement? It really depends on the terms of the forbearance that you'd like to do, but generally we can draft a forbearance agreement anywhere between 520 $500 and generally takes anywhere from same day to one or two business days to prepare that agreement for you. So if you have any questions about getting a forbearance agreement drafted, feel free to reach out to NEMA or I and we can follow up with you with regards to what we need from you to draft it and also to provide you an accurate quote

Nema Daghbandan, Esq.:

Next here is what's the difference between a forbearance on an owner occupied business purpose loan and a non-owner occupied business purpose loan, like a rental loan? So really there's not a significant difference between the two when it deals with a forbearance because most of the regulations that apply for loans look to the nature of the loan, not the occupancy. So if the loan was for business purposes, most of the consumer protection regulations go out the window. So it's not to say that you should treat them identically a loan for business purposes that's secured by the primaries of the borrower. You probably need to be a little bit more deferential to that type of borrower because that borrower is going to be a more sympathetic in the eyes of the law when you're in front of a court and it's your primary residence at stake, that judge knows what it's like to or understands what it means for that person to lose their home versus a investment that they made. So I would probably, although it's not necessarily a legal answer, there is a practical implication to what you're doing here.

Melissa Martorella, Esq.:

The next question is, would there be a difference between loans and income producing properties, development loans or land loans when you're considering offering a forbearance? And really, yes. It kind of comes down to why they're asking you for the payment forbearance and ultimately going back to when you originated the loan, how did this borrower state that they would debt service your loan? Was it based on the income that they were going to generate at the property through rentals or otherwise? If so, and the tenants aren't paying at that property, then it makes sense that there could be a hardship there if it wasn't going to be that they just were able to make the monthly payments based on other facts, they had other income producing properties or they just had enough funds to debt service the loan outright. You really have to look at what the reason for the forbearance request is and compare that to how you evaluated at the outset, how that borrower was able to debt service your loan.

Nema Daghbandan, Esq.:

Next one here is just really a comment and I'll do a call out as well because it's our dear friend, Sam Ally. Sam, great to hear that you're on the call. Hope you're doing well out there in Florida, bud. Thank you or thankful to you and Team Geraci for the abundant value you provide. We will get through this and I want to echo that as well. We're so fortunate here at the firm, and I'll take it a little sidebar. I love speaking with each and every one of you and it really brings joy to each and every one of us. We've been able to get on so many calls in the past few weeks here, and it was always all business, and it's nice to just be able to catch up with people. We prefer them not to be in these circumstances, but it's just been wonderful to catch up with all of you. I hope you're all doing well and safe out there. And thanks, Sam. We really appreciate your support.

Melissa Martorella, Esq.:

The next question that we have here is, would a delay in obtaining a certificate of occupancy or permanent inspection due to the city being slow or a statement that it's hard to sell properties right now because there are no live showings? Would those constitute a hardship or do these hardships that would generate a forbearance agreement? Do they have to be centered on there being a financial hardship and having inability to pay monthly payments? This is a great question. So definitely we know right now things like appraisals, things like permits, they are taking longer to obtain by borrowers because the cities or counties are slow. Just because they are slow doesn't mean that it won't happen eventually. So you should probably work with your borrowers in these situations and kind of put timelines on them. It may make sense that you give them an extra month or 45 days or something to obtain the certificate of occupancy or kind of monitor that as the situation progresses and lockdown orders are lifted to see when you could actually get these things issued. So it doesn't necessarily have to be a payment hardship or a financial hardship that causes your loan to be in default. It could be something unrelated that the borrower just can't control based on the circumstances right now.

Nema Daghbandan, Esq.:

Next question here is the release of lender provision in Geraci's forbearance document is very broad and candidly very favorable to the lender, broker, et cetera. Have you had any instances where the borrowers have pushed back on this? So we talked earlier in this webinar about whether obtaining what was called a general release and maybe getting specific releases as well if you knew they were known defects. And when we were drafting a forbearance agreement, this is one of the things that we focus a lot of our energy and effort on, is making sure that you've got really significant protection as a lender down the road to try to avoid future litigation. And so as a general rule is we don't, because in our experience, a pretty legally intense section of the document, most people kind of just read it and go through it. We don't really particularly see a lot of pushback on any sort of general release, which is another reason why we highly recommend getting it. So I haven't had a lot of instances. I mean, a really sophisticated borrower might kind of push back and try to modify a little bit, but I don't know. I'm trying to think of the last time I remember negotiating with someone. Do you have any recollection on this one?

Melissa Martorella, Esq.:

Yeah, it's pretty rare. And like Nema said, it's usually when you have a sophisticated borrower and typically that borrower is represented by counsel that you would have to negotiate through it, but it does not happen very frequently.

Nema Daghbandan, Esq.:

And the last one is just a comment, which is just thank you for the education. Well, we want to thank each and every one of you. We had a total of 40 questions that we answered here on here, and we just want to thank all of you for listening to this. We hope you get value in this. We hope all of you are safe. We hope you're doing well as a business as well as you can be right now. We know these are really trying times and the sense of community that we're getting from this is really fantastic, and we just want to thank each and every one of you for your time today. We hope all of you have a great week. We're excited to continue to try to get through this together, and we just hope you and your families are safe out there. Take care everyone.

Melissa Martorella, Esq.:

Thank you.