The third key principle to a real estate workout: Keep Arrows in Your Quiver
Minneapolis real estate attorney John Koneck discusses his third principle to a real estate workout and explains what he means by “keep your arrows in your quiver.”
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Yeah, you’ve asked me what the third principle is, and that is keep some arrows in your quiver. In a workout situation its’ all about negotiation and strength and weakness. And from a borrower’s perspective, the borrower is almost always in a weaker position than the lender is. The lender has money, the borrower doesn’t have money. The lender has a mortgage that gives it certain rights. The borrower’s trying to resist the lender’s exercise of those rights. And what a borrower looks for is hooks or problems with the lender’s position that maybe gives the borrower some strength. Maybe the market is bad so the borrower knows the lender doesn’t want the property back. Maybe there’s a problem with the loan documents so the lender can’t foreclose as quickly or as easily as it wants to. Maybe the lender did something bad like didn’t loan all the money or made some promises that it didn’t keep.
All of those things are hooks or using the analogy that this principle is based on, our arrows that the borrower can use against the lender. The first thing that a lender will do in the workout process when the parties enter into an agreement to start discussing how they might resolve this is ask the borrower to waive all of its defenses. In other words, take all the arrows out of its quiver. What the borrower has to resist is doing that early in the process because once the borrower gives up all of its leverage, then it makes it much more difficult to get a workout done. So from a borrower’s perspective, you don’t give up all those arrows. You try to keep as many as you can.