You are in default and you own a valuable minority position in real estate.

Oops! You have a business and have a defaulted loan. You provide a balance sheet and financial statement that discloses a partnership relationship on a valuable piece of real estate. You believe your ownership position is in jeopardy, what do you do?

There are a number of issues here as follows:

1. You do not want to lose your property interest.

2. You do not want the equity added into the workout resolution; it will drive the offer in compromise offer up significantly.

3. You do not want the bank to demand you transfer your ownership interest to them as your partners would hardly want to have the bank as their new partner.

4. You do not want to sell your position back to your existing partners as the cash would go to the bank and you will lose out on everything the investment was intended to provide you.

What can you do?

Here is the answer.

It actually is good advice for any partnership, so here it is: a poison pill agreement. An agreement that if any partner in a partnership relationship where there are valuable assets such as real estate, the partners agree that if any of the partners come under creditor’s attack or file for bankruptcy or assignment for the benefit of creditors become insolvent, etc. the other partners have the option of gaining control of the offending partner’s ownership with the consideration being a hold harmless and indemnification agreement agreeing to take over that partner’s debt obligations on the property in question.

Thus when the bank attacks, or a partner becomes insolvent, the letter agreement will deflect a bank’s or creditor’s action. As soon as the bank begins to reach in, the other partners can take control of your position and reject the banks demands. This works and is done in big businesses and will work here.

Call 413-549-0162 if you need help designing this agreement. Norm will set up a no obligation teleconference.