Dear Banker, Third-Party Representation Ensures The Best End Result

Dear Banker,

Why do you have such an aversion to third-party expert representation of the defaulting borrower? This is a sensitive issue that is steeped in emotion and resistance. If evaluated carefully, third-party turnaround and workout experts should be reconsidered and accepted as a positive force, helpful to all involved, even the bank.

Here are the advantages of dealing with a third-party expert representative of a defaulting borrower:

1. If  the expert truly is an experienced turnaround and workout expert, there remains the possibility that the business can be saved and the bank repaid. This is obviously a great result. If only the bank would allow such an event to occur by supporting the efforts of a third-party expert committed to trying to turn the business around. If the bank is provided real-time cash flow analysis  and frequent reporting of the strategies and progress that support the turnaround, showing real change, why not give it a shot and allow the attempt? It may work and what a success if it does!
2. A true turnaround agent will provide the bank with every relevant document it requests and demonstrate true transparency supporting their effort. This seldom happens without a third-party expert involved and should support the bank’s willingness to accept the third-party effort.
3. A modification, as opposed to wholesale liquidation, may be justified. This is another excellent result, probably unlikely if handled by the defaulting borrower but more likely in the hands of an experienced turnaround and workout expert.
4. If all else fails and liquidation must occur, a bona fide third-party expert will support this effort and attempt to liquidate for the benefit of the bank through a sale of assets preventing the need for foreclosure and auction–a worse result. They can still reduce the losses to the bank and borrower.
5. It is true that the expert must get paid and this reduces available funds for paying the bank, but I would argue that the positive results outweigh this issue.

I would suggest that refusing to work with such a third-party expert violates the basic rights of the borrower, particularly if the expert is granted power of attorney. It is well established that this right is enforceable and the banks simply steamroll over such rights because of their power and the inability of the borrower to defend his rights. Perhaps the biggest perceived advantage the bank achieves in this practice is the likelihood that the borrower is steeped in fear and unable to resist the powerful demands of the bank to do what he should not do, such as cash in his 401k or add additional guaranties without real consideration or benefits to the added guarantor, or any other requirements the bank puts forth to gain leverage. Clearly, an expert will not comply or allow such things to occur. This happens far more than one would care to acknowledge and I believe is a major reason for this practice of refusing to deal with third-party turnaround and workout experts. A third-party turnaround and workout expert knows what’s right and what’s wrong and will not allow the bank to violate the rights of the borrower in default.

Is this really the way the game should be played, with the bank gaining an unfair advantage and then coercing self-liquidation for its own benefit under the worst possible circumstances? Based on the bank’s fiduciary responsibility and lender liability issues, even if seldom litigated, this practice ought to be eliminated. Allowing third-party experts to be involved helps to level the playing field so a quality workout can be engineered with fairness to all involved and, in all likelihood, with a better end result and less waste. Third-party experts can play an important and valuable role for both the bank and the borrower and should be welcomed, not repelled.

I believe the turnaround and workout experts are the bank’s best friend and should be encourage to participate. It is worth mentioning that occasionally, the banks recommend third-party independent workout specialists who appear to be acceptable, although they usually favor the bank. So apparently they do serve a purpose in the eyes of the bank, but not when they are chosen by the borrower. Why is this? Because the ones chosen by the bank are beholden to the bank and slanted towards the bank’s interests while the ones chosen by the defaulting borrower are working in the borrower’s best interest. Let’s consider this for a context–the borrower has the right to choose whomever they want and those chosen by the borrower are interested in an appropriate and fair result even if slanted towards the borrower’s best interests.

Remember, the bank is not obligated to accept a proposal unless it is in their best interest, so what is there to be afraid of here? Let a third-party get involved; it may do some good for everyone involved. An expert may develop a viable plan that works for everyone. Refusing to do business with a third-party expert is not the appropriate way to do business. Open up the playing field and allow all the help the experts can give.