You Must Be In Default To Enter Into A Workout Negotiation

Yes, you must be in default to enter into a workout negotiation. I am asked about this all the time and frequently confront situations where people are wanting to do a workout yet they are keeping current on their payments. I know it makes little sense from the borrower’s side to make the decision to default when, if pressed, you could continue to pay. However, consider the basic logic from the lender’s point of view. Why enter into a workout negotiation if the customer – the borrower – is still paying? It makes little sense for them to support a reduction of principle if you are demonstrating an ability to pay current.

I realize people bend over backwards to pay, depriving themselves of a paycheck and juggling other payments to stay current on any number of secured debt obligations including mortgages and credit cards and thus are truly in need of a workout and are prime candidates as the cash flow cannot support the overhead and debt service requirements. If you are not taking a paycheck and are juggling your payables to stay afloat, you are really kidding yourself. You are definitely already in need of a workout and have simply failed to recognize the symptoms. Trying to stay current on loan obligations is a losing battle. While managing to stay current on most of your obligations out of a sense of duty and commitment, you continue your decline and erosion.

The fact is, there can be no workout negotiation while you remain current. Further, you must be at least 90 days in arrears in most situations to be considered a viable workout candidate. If you are headed for trouble, or are already in trouble and see the handwriting on the wall, review your debt service commitments and plan to default as soon as you make the decision that you must enter into a workout negotiation as it will not proceed unless you are in default for at least 90 days.

It may seem like backwards thinking but the entire world of workouts is backwards. Yes, you must go into arrears, default and fail to pay in order to get into a workout negotiation with your creditor. Call for help. Norm will arrange a no-obligation teleconference.