As a secured lender, once you decide to foreclose on a business borrower’s loan collateral, you must provide certain information and documentation to your lawyer so he or she can file suit. The more quickly you send this data, and the more thorough the data is, the more efficient your attorney can be in initiating the action.
Care Package. I recommend that lenders develop a practice of compiling a “care package” for their lawyers when assigning a non-performing loan for collection. The package should include:
1. Loan documents. Each and every piece of paper documenting the loan needs to be forwarded. This would include all promissory notes, mortgages, security agreements, amendments, modifications, assignments, etc. Not only will the law firm need these materials to analyze the case, but Indiana Trial Rule 9.2(A) requires written instruments, upon which a cause of action is based, to be filed as exhibits to the Complaint.
2. Defaults. Although most defaults will be for non-payment, there may be other breaches of the loan documents. All such defaults need to be identified in the Complaint. To give your attorney a jump start on the default analysis, a listing of any and all contract breaches, with the operative dates and citations to loan document sections, will be useful.
3. Debt figures. Even though the loss amount may change (increase) over time, the standard practice in Indiana is to specify the debt (damages) as of the filing of the Complaint. These figures will include any losses recoverable under the loan documents, mainly the entire unpaid principal (assuming the debt is being accelerated), accrued interest and late fees. A brief calculation of the figures should be explained, including relevant dates, interest rates, etc.
4. Notice letter. A copy of the notice and cure letter to the borrower should be provided, assuming that the loan documents required one and that you sent one. Not only will your counsel need to evaluate the notice and cure element of the case, but it’s good practice to attach the letter as an exhibit to the Complaint.
5. Title/UCC searches. If you have a prior title insurance policy and/or UCC search, those materials should be sent with the care package. Lenders could save some expense simply by ordering an update to the title policy from the same company. Or, a separate title insurance company may provide a new commitment faster and more cheaply based on a prior policy.
6. Environmental analysis. If an environmental liability analysis has been performed, the report should be included in what you send to your counsel.
7. Appraisals. If the you had any collateral appraised in the weeks leading up to the decision to foreclose, the appraisal reports should be provided. Knowing the present value of the collateral may be helpful in work-out negotiations or decisions regarding the disposition of the collateral.
8. Contact information. Current contact information for the borrower or, if applicable, the borrower’s counsel should be supplied. It’s also a good idea to provide a copy of all correspondence between the lender and the borrower (or the borrower’s lawyer) related to pre-suit/work-out discussions. This information will enable your counsel to understand better the nature of the dispute, and to hit the ground running with future communications.
Efficiency. Two things are saved when lenders and their counsel are efficient: time and expense. If, at the beginning of an assignment, your staff provides outside counsel with the care package I propose, law firms (at least mine) will initiate the foreclosure action quicker and for less money. Delays and attorney’s fees can be avoided by bypassing the follow-up that usually is required in obtaining data from the lender – things that can be provided at the outset, even before the lender first contacts its attorney.