When entering into a workout, you will probably be sued, with a judgement entered. So what.

Everyone gets so upset over law suits and judgments entered against you. I understand it is not a pleasant experience, but really folks what does it mean? It means you REEEEEEEEEEAAAAAAAALLLLLLY owe the bank the money, where before you only owed it to them…big difference ? No. Sure it may hurt your credit score a bit more, but chances are you are in need of a credit rehab program anyways and  the debt relief is worth a credit ding which can be worked out later.

The second point is the bank does not want the property just the judgment, and a workout can be negotiated after a judgment is entered, no problem. We do it all the time,

So why do the banks spend the money to get empty judgments that seemingly mean little to anyone?

1. Sometimes they result in surprise settlements of significant value. People panic and fold into the banks demands thinking the judgment means something very powerful. It’s amazing how that happens.

2. It is a natural reaction for the bank to protect its interests, get first in line and be ready to pounce should the opportunity ever make itself apparent. IT makes sense from a banks point of view but does not hinder the workout potential.

3. If there is to be a foreclosure, the law suit is fundamental and required, thus the bank is simply preparing the paperwork as they may  have to eventually liquidate the collateral by auction. Even though you may be talking settlement, the bank is getting ready if you fail. The bank does not want to waste any further time then it must based on the regulatory requirements of notice and response. Onward it churns.

4. Of course finally if the loan is an SBA guaranteed loan, then the bank must ‘exhaust its legal remedies to liquidate the collateral’, or risk losing the guaranty from the SBA. Thus they sue and go for the judgment full steam ahead.

Is it so bad for the borrower? Not really, it will be worked out just the same, its only value to the bank is  positioning and  for intimidation as well as it  being the banks strategy. This is what banks do. It is their only avenue of protection and action…so they do it.

The important point is it does not interfere with the opportunity to engage in a workout. In fact frequently since now we have the opportunity to deal with the bank counsel, it sometimes works out better as the banks attorney sometimes  recognizes a lost cause and often recommends a settlement that the bank has rejected.

Understand what is happening, have a counter plan, a workout strategy, in motion and all will work out. If you fail to do this your assets  will eventually  be liquidated.

Workouts are a tough road to take…but a necessary tool for any business man to consider when required. What option do you have? Debt can kill you faster then anything else.