If, for example.B a spouse has a business that is a borrower under the loan and personally guarantees the loan, the bank may demand, in exchange for the leniency agreement, a security interest in that spouse`s home. Under Missouri law, assets jointly held by a couple are not only subject to the debts of one or the other. Therefore, if the business owner is married, his personal residence, if jointly titled, would be immune to the bank`s commercial credit collection efforts. In some circumstances, a leniency agreement may be the way forward for a borrower who is having difficulty fulfilling his or her obligations to a bank. However, it is extremely important that the details of the leniency agreement be understood and that the terms are negotiated with the lender. Regardless of what the lender may tell you, the bank or other lender is looking for its best interest in entering into a leniency agreement with you. It is up to you to ensure that your interests and those of your business are protected. For entrepreneurs, a leniency agreement gives them some relief, as it gives them time to solve the business problems that have contributed to their current financial problems. Without this agreement, a bank could appoint a receiver to sell the company`s assets and close the business. But, as with all treaties, an indulgence agreement has conditions and consequences. This is why it is important that business owners understand the ins and outs of an indulgence agreement before signing on the points line.
[1] See the definition of “indulgence” in Black LawDictionary, Ninth Edition (2009: West, a Thomson Business) p. 717 The importance of correcting security deficiencies or deficiencies cannot be overstated and must be addressed and corrected in a targeted manner by the parties. Nor can it be sufficient to avail itself of the recognition of the validity of a debtor or a surety, which is included in the leniency agreement, and to expect the courts to overlook fundamental flaws. A recent decision by the Prince Edward Island Court of Appeal provides a useful example – and the need to ensure that the forbearance agreement itself has been properly executed. Lewis v. Central Credit Union Limited 2012 PECA 9 (CanLII) looked at a situation in which two mortgages that the lender attempted to obtain contained inherent defects that the court did not wish to obtain despite the subsequent execution of a leniency agreement that recognized the guarantee. The coronavirus outbreak triggered the indulgence of Fannie Mae and Freddie Mac. Between these two institutions, they guarantee more than two thirds of all mortgages and 95% of mortgage-backed securities. Prior to that decision, the California courts had not held that a leniency agreement was an instrument of intervention that provided for the formal conditions for compliance with the status of fraud.
As noted in the judgment, Miller and Starr, a recognized resource in California real estate law, had stated that an indulgence agreement was not necessary in writing. The borrower must resume the full payment at the end of the period, plus pay an additional amount to receive the missing payments, including principal, interest, taxes and insurance. The terms of the agreement vary depending on the lender and the situation. Lenders typically already receive monthly reports to assess the debtor`s activity and the potential erosion of their securities position.