“A Change in Plans for Lenders and Borrowers”, By Steven “Sonny” F. Ginsberg

By Steven F. Ginsberg and Erin H. Simon

Since the very nature of a suggested change in a development plan is a business decision, how can lenders assist borrowers and maintain their collateral while averting liability?

The current economic crisis has perhaps hit no industry as hard as the real estate development industry. Construction and development loans made two or three years ago are now coming due in a marketplace vastly different, and largely unimagined, by lenders and borrowers alike. Loan officers and servicers are spending much of their time negotiating extensions for loans that cannot be repaid due to the collapse of underlying markets, especially concerning residential and retail properties. Nearly as often, however, they are presented with alternative models of the business or development plans approved by the lender at loan origination. Do officers and servicers have a duty to review these proposals, and if so, are they obligated to approve plan modifications?

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