Foreclosure Based On Technical Default Is Increasing At An Alarming Rate

We have noticed that foreclosure based on technical default is increasing. This is happening at a slow but increasing rate, and that is very alarming. This perfect storm and may soon be a tsunami again, just as it was in the early ’80s when the FDIC closed hundreds of banks for insolvency reasons and then foreclosed on individual borrowers for technical default reasons. This was typically because the collateral was no longer worth the value of the note, mostly from declining real estate values.

In fact, we just spoke to a small business owner with a great new business, just a mere few years old with increasing revenues, demonstrating sizable profits and with no payment default issues. The business is doing very well. However, the bank informed him that he would have to produce an additional million in collateral to effectively collateralize the notes or face foreclosure. The reality is that the bank is correct about one issue–the collateral now is worth a million less than it was when the note was taken out. But where on earth is the business owner going to come up with an additional million in collateral, since with his personal guaranty, everything he has is already in the pot? He is facing foreclosure despite his success. Now that is a nightmare.

What to do? The only path possible–do the debt workout and fight fire with a bigger fire. Take control and get in front of this issue. Remove the debt and reduce the guaranty. This is the only way to save the business and the guarantors, reducing it to affordable losses. What choice do you have?