Texas Commercial Law Firm

Workout agreements usually take the form of a Modification Agreement. They generally involve a compromise on the part of the lender to accept less than the terms of the loan with the borrower would otherwise provide. Lenders may be willing to compromise and enter into a workout because they believe they will recover more than they would through liquidation of the collateral.

By their very nature, no two workouts are the same since their terms are dependent upon the lender's and borrower's creativity in putting together a foreclosure alternative. Such a plan will take into account any number of factors such as the loan's debt to value ratio, the borrower's financial resources including present and projected cash flow, and the borrower's ability to pledge additional collateral. Workouts may involve a payment grace period, a temporary or permanent reduction in the regularly required payments, a principal and/or interest reduction, extension of the note term or the pledge of additional collateral by the borrower. Whatever its terms, the goal of any workout from the lender's perspective is to maximize recovery of its loan.

Forbearance agreements differ from workouts in that they are temporary arrangements to maintain the status quo. They are also unlike workouts in that they do not involve long-term rearrangement of debt or a compromise by the lender to accept significantly less than it would receive under the terms of the original loan documents.

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