Many lenders anticipate a surge of bankruptcy filings due to the economic unpredictability brought on by rising interest rates, problems with the supply chain, and record inflation. A lender will frequently inquire about ways to reduce risk after considering this and when bankruptcy should be a concern. This is essential as lenders might witness an unprecedented increase in bankruptcy filings over the next 12 months, with borrowers facing cash flow issues, uncertain collateral values, and a host of natural and economic disasters. Here are some steps a lender can take to prevent bankruptcy risk.
- Implement excellent underwriting practices during loan evaluation. Depending on the type of loan and collateral involved, a thorough analysis of cash flows for properties, creditworthiness, and approved rent roll is essential to avoiding bankruptcy.
- Adequate documentation of loan transactions can be effective in preventing bankruptcy risks as well. With this, the borrower’s ability to repay the loan is adequately evaluated before proceeding.
- Practical review of borrower and guarantor’s entity documentation to ascertain the proper authorization of loan documents is provided.
- Ensure the borrower possesses a marketable title to the property serving as collateral by adequately reviewing the title commitment for the property.
If the loan has been closed, the lender can provide a workout strategy to enable the borrower to restructure the loan and avoid a default scenario that could lead to bankruptcy risks. Nevertheless, the lender should ensure that the borrower and guarantor properly documented and signed the final agreement. To read more, click here.
Note Servicing Center provides professional, fully compliant loan servicing for private mortgage investors so they can avoid the aggravation of servicing their own loans and just relax and get paid.
Contact us today for more information.