Business Loan in default - preplanning and CC questions

[justasking]

Thanks for posting.

I have come to realize you are 100% correct!

After I posted my last message, we pretty much decided to just "stop worrying or thinking about this" and wait for our lawyer to contact us. And he will once their lawyer contacts him.

We have not checked in with him. We have not worried about the timeline or the results or anything. We are just going about our business, which is about to have another profitable month.

We are of the opinion that this bank kinda backed itself into the wall when it stole our loan payments. And when we made it clear we won't pay it off and we'd be happy to meet in front of the judge about said-stolen loan payments, they realized our hand was stronger than theirs. So now they do not know what to do ...

We believe it would be in their best interests to take our settlement offer ... but I am not sure they have enough intelligence to see that. I am also amazed that a bank of this size ($1B in assets) has outside legal counsel. I tihnk he runs up their bill and they don't really care because they've already got us in their loan loss reserve allocations.

Anyways, no news for four plus weeks and really don't care anymore.

It will be interesting to see what they do next ...

[Mensa1]

ja:

I have experience negotiating on behalf of others, not for myself, and the results are all over the board. Some banks respond and some don't; too scattered to generalize.

I think the common element is to have little expectation or pre-conceived results, be patient and let the chips fall where they may. Once chips have fallen or the bank has shown some of their hand, then you can react to that scenario. The biggest mistake most folks make in attempting to negotiate is that they expect results in days, or weeks. Your situation is not paramount or emotional to the bank like it is to an individual debtor and emotions usually get the best of most folks and their desire to settle causes them to be bluffed up in negotiations. Attempt to picture in your mind that "it doesn't matter to you if it gets settled or not", and if you can portray that strategy and let the bank come to you, then your results will have a better chance of working out as you would like them to in the end. It just never seems to meet the timetablee of those who are anxious to get the hassle over with.

[justasking]

Updated Status in June:

Bank is making no movement on our situation. We threw out an offer, they ignored it.

We've stopped making payments on all loans as they took one loan payment and reversed it and applied it to the LOC. Since then, we've been arguing they don't have a right to do that.

Been trying to find federal or MN law to support that but nothing yet. Have found "First in Time, First in Right" Rule that argues the olded loan gets first priority in repayment. Plan to use that arguement as a countersuit if they attempt to foreclose on loan.

My Question is this >> for those of you who negotiated with the bank on a settlement or term out, how long did it take for you to go thru this process?

I am starting to realize it is probably to my advantage to just let them take as long as they want ... 3 months, 6 to 12 months, whatever ...

Looking for personal experience if you have any ...

Thanks!!

[justasking]

Just updating this thread and have a new question for everyone.

First off, we are still negotiating with bank over possible $$ amount to settle outstanding notes. Not much movement there yet but still working on it.

(Quick Background for others: Bank would not renew LOC and thus, called all three notes. We are only in default with those bank notes so trying to settle with bank.)

We've been talking this over between ourselves and attorney and still feel Chapter 11 is the better way to go with this business as cash flow is good right now and we actually had a profitable month in April.

My question is concerning our A/P Vendors and listing those we really need to keep paid as Critical Vendors in our first day motions if we end up filing.

Has anyone else had to do this? Did it work? Were you able to keep paying those vendors (parts, contract mfg's, etc.) that you really need to keep your business alive?

Thanks in advance for all replies.

[justasking]

So the bank has a current 2nd mtg on your property NOW? Are you certain that the notes are not cross-collateralized? I would make sure bc this language can be common and sometimes the debtor doesn't catch it when executing a note. In other words the notes might sautomatically become an encumbrance because they already have a secured position. Just check it out.

Also do you have accts at the same Bank? Make certain that they do not tap your accts if you in any way indicate a default situation.

Well, we've gone over Biz notes once, will do so again. I could not find the text but possibly it is there. HELOC was originally done around 2003. Biz notes in 2008. It is probably there ... I will ask the lawyer.

No accounts there anymore, we were smart enough to move those already 4th Quarter 2009 when they said they would not be renewing LOC. They gave us a 3+ month warning and did not cut off LOC. Guess I should have pulled it all but was trying to keep amount in default as low as possible ...

[Mensa1]

Also interesting to note biz loans have personal guarantee of course, but they don't have anything on our property. Could be because he didn't care or could be because they already had interest as a second mortgage ...

So the bank has a current 2nd mtg on your property NOW? Are you certain that the notes are not cross-collateralized? I would make sure bc this language can be common and sometimes the debtor doesn't catch it when executing a note. In other words the notes might sautomatically become an encumbrance because they already have a secured position. Just check it out.

Also do you have accts at the same Bank? Make certain that they do not tap your accts if you in any way indicate a default situation.

[justasking]

Agree that you should be non-consumer Ch 7.

Does the lender have a recent appraisal on the property?

Nope, they don't.

The last appraisal done on the property was with the SBA loan done almost 7 years ago ... only 3 more payments on that loan so we will have it done before the bank decides what to do with its two notes. These two loans were the last two loans a retiring loan officer did before the bank was bought out ... he pretty much used all the data they had on us from earlier and considered it good enough.

Also interesting to note biz loans have personal guarantee of course, but they don't have anything on our property. Could be because he didn't care or could be because they already had interest as a second mortgage ...

Anyway, hoping lawyer is back from dealing with death in family and we can meet with him this week.

Will keep you updated if you like ....

[Mensa1]

MN ... probably was based on original appraisal of property before business built on homestead. Normal appraisals do not adequately address commercial property on a homestead. Probably because that plus 20% drop in value of homes recently puts us right around that amount, most likely under. Have not done an appraisel lately

Business pays rent for the commercial use of an out building, county assesses commercial taxes on the biz use of that out building. This suggests then that this would all fall under non-consumer debt if not exemption, no?

Agree that you should be non-consumer Ch 7, either way... with or w/o hs exemption.

Does the lender have a recent appraisal on the property? They should have, if the property was used as collaterol for the loan. What amount was the appraisal at that point? Also the taxing as comm'l property seems to lean away from hs... but a local Bk Atty should be able to answer that one for you. Is there anyway to subdivide the interests; pers res and comm'l property? Not that this would be ideal from your standpoint but it may keep you from losing the entire hs exemption, if the property was not permitted as a hs. Just brainstorming here...

[justasking]

You also sate: "We probably fall within those exemptions" Define PROBABLY????? Reason(s)...?

MN ... probably was based on original appraisal of property before business built on homestead. Normal appraisals do not adequately address commercial property on a homestead. Probably because that plus 20% drop in value of homes recently puts us right around that amount, most likely under. Have not done an appraisel lately

Business pays rent for the commercial use of an out building, county assesses commercial taxes on the biz use of that out building. This suggests then that this would all fall under non-consumer debt if not exemption, no?

[Mensa1]

Yes, I did ... and this what I just found:

Homestead

510.01 & 510.02 & 550.37 - A home and the land it is situated on up to $300,000 ($750,000 if used primarily for agriculture), but can not exceed 1/2 acre in a city or 160 acres elsewhere.

We probably fall within those exemptions ... so that means they cannot take the homestead, correct?

I don't know the answer to that. What state are you located?

Also wonder if there is any AP that a lender could claim regarding the use of hs for business purposes? Have you deducted any part of the home property for business use? I am just asking here bc I am not sure of any distintion that may exist for Bk purposes, but it could be easily researched.

You also sate: "We probably fall within those exemptions" Define PROBABLY????? You dont sound convincing in your reply here. So why are you vague on that point???????? Reason(s)...?

[justasking]

Didn't you earlier state something about the homestead and the business property being on the homestead? What is your HS exemption in yoru state? Also how does the biz proeprty figure into the HS exemption?

Yes, I did ... and this what I just found:

Homestead

510.01 & 510.02 & 550.37 - A home and the land it is situated on up to $300,000 ($750,000 if used primarily for agriculture), but can not exceed 1/2 acre in a city or 160 acres elsewhere.

We probably fall within those exemptions ... so that means they cannot take the homestead, correct?

[Mensa1]

So do they want to take it all down or no? That is the 20M question

Let me say it with this parallel example.

1) If the Bank settles they ends up with 50K.
2) If they take it all down they end up with 150K...

My suggestion is that you get the he!! out of the way because it is all coming down. At least in 98 out of 100 cases, so unless you get extremely fortunate, they will dismantle you.


Didn't you earlier state something about the homestead and the business property being on the homestead? What is your HS exemption in yoru state? Also how does the biz proeprty figure into the HS exemption?

[justasking]

Maybe, maybe not, but in the end it is always about the $$$. Don't kid yourself.

I hear you. I realize it is all about the money. I do hear you.

The question is how hard do they want to work for a small amount of $$. And I am talking small. Probably under $50k. Personal guarantees are there, yes, but this bank also has a second on our homestead too, outside of the biz. BUT not the first.

So do they want to take it all down or no? That is the 20M question

[Mensa1]

But there isn't enough collateral for any bank that has told you they don't want you as their customer any more. They want out ... and collaterol goes home at night, we are a knowledge company. They bet we could finish our project and go into production without the recession. Didn't happen. So you win some, you lose some.

This bank was also bought out about 2 years ago and thru the rumor mill, told to clean up its books. It may be too leveraged. So we are just one of many. Also we are an communications knowledge company in the land of farmers ... they are not comfortable with us. So there is more going on here that just dollars and cents.

Maybe, maybe not, but in the end it is always about the $$$. Don't kid yourself.

What the bank will look to is how are they secured? They are secured by more than your biz, aka Pers Guarantee. So it boils down to what "other collaterol" that they have a pledged interest in, such as your home, or other hard assets. So what are those? if you are liquidated, including personally, what does the bank stand to receive? That is ALL that it comes down to in the end.

The fact that the bank was sold/absorbed several years ago may be material and maybe not. They will still attempt to convert security of cash assets, in fact it is an obligation for them to do so. Shareholders... don't forget them. Bankers can get fired for doing things that make NO financial sense, so you need to look at this objectively, as an outsider and see if what you expect makes any sense. Hard to do when you are emotionally tied to the expected outcome.

[justasking]

Many times folks want a bank to do X, Y or Z, however if they were the bank and had their skin in the game on the banks side of the table, they wouldn't play the hand quite like they wish for it to come out. (being unemotional and detatched from the problem). Why would the bank be willing to do what you want them to do??? (that is the $ 64K question). Answer that and you may be on your way to a settlement. Usually the only good reason is if the bank is scared that they will lose big time if they don't accept the settlement. Keep in mind banks aren't afraid of foreclosure, or even default, as long as there is plenty of collaterol behind the loan. GL

But there isn't enough collateral for any bank that has told you they don't want you as their customer any more. They want out ... and collaterol goes home at night, we are a knowledge company. They bet we could finish our project and go into production without the recession. Didn't happen. So you win some, you lose some.

This bank was also bought out about 2 years ago and thru the rumor mill, told to clean up its books. It may be too leveraged. So we are just one of many. Also we are an communications knowledge company in the land of farmers ... they are not comfortable with us. So there is more going on here that just dollars and cents.