Dear Banker, Why Go To The Lawyers So Quickly?

Dear Banker,

Here is a very challenging question, one which causes much negative reaction from bankers: Why turn the workout over to counsel when the borrower in default is attempting to engage in a best-case workout in the best interest of the bank? Why hand the file over to the lawyers before you need to engage in foreclosure and liquidation by auction?

Here are  the reasons why the banker should not turn the file over to lawyers too soon:

1. It increases the expense, probably unnecessarily. What is there to be gained from this–especially when foreclosure and liquidation is unlikely–if the defaulting borrower is cooperating?
2. It prevents direct discourse and meaningful communication, i.e. a real workout. The banker is denied the details and minutia of the workout effort since it is interpreted and transferred down the line to the banker through the lawyer’s filter. It is the banker’s job to evaluate, not the lawyer’s.
3. The lawyer’s goal may not be the same as the bank’s. His goal may be foreclosure and liquidation, while the bank’s is maximizing the return. A legal analysis is not the same as a business analysis.
4. The bank and the borrower got into this deal together, shouldn’t they make every effort to work it out together?
5. The borrower’s integrity and character is very much a factor and the lawyer, in all likelihood, is not interested in this factor so the banker misses out on this most important aspect.
6. In the end, what has really been gained other than additional costs and reduced effectiveness? If all else fails it can always be turned over to the lawyer to liquidate efficiently, but why have the lawyer negotiate the workout when really it is the job of the banker to do this? It is not a legal issue.

I urge bankers to hold on to the file, exhausting their effort to work it out before handing the file over to the lawyers for liquidation. This works better for all concerned.