9. Evaluate the lender's liens and collateral position. Understanding the lender's rights and what action it likely will take can help negotiations. The borrowers' attorney can review the loan documents and the lender's security interests in any collateral for flaws that may encourage lender cooperation. If the lender already has sent a notice of default, the attorney can determine if the notice was provided properly.

If a notice of default contains flaws such as incorrect contact parties, improper methods of notice, failure to provide a proper cure period or immediate acceleration versus notice of intent to accelerate, it may be invalid. This allows the borrower the potential right to obtain a restraining order on the date of the foreclosure sale. Conversely, if there are any problems with the loan documents, the borrower should expect that the lender will cure these flaws in connection with any extension or modification.

10. Offer terms that show the borrower has a stake in the game. Borrowers' proposals must show that they are committed to the loan and the collateral. Offering lender-protective terms will influence the plan's success. Examples include infusing capital to improve the collateral property, paying down the outstanding debt, adding a lockbox to trap cash, adding escrows, adding a guarantor and providing a current release of borrower claims.

11. Communicate potential consequences for failure to extend or modify. Discuss what may happen if the loan cannot be extended or modified. For example, in the retail sector, market conditions are causing less shopping activity and less profits -- and ultimately, tenant departures. Continuing full debt-service payments without any relief may risk cash-flow shortfalls to pay normal operating expenses, including payroll and taxes. If the borrowers do not have the cash to pay for these deficiencies, and the lender does not provide temporary relief, borrowers may have no choice but to file for bankruptcy or close down. The lender may not be prepared to take on the expense of foreclosure or possession of its collateral. It should weigh its alternatives and the potential expense.

12. Be prepared for the extension or modification request to fail. An extension or modification may be unavailable because of market conditions, the property status or market-recovery projections. The borrower's cooperation with respect to the lender's or servicer's remedial action plan, whether a deed in lieu of foreclosure, foreclosure or something else, may be more cost-efficient for the lender and may settle potential litigation against borrowers. Filing bankruptcy or handing the keys to the lender or servicer may risk recourse carve-out liability and lender litigation. A cooperative and cordial workout, even if it is not an extension or modification, may benefit the borrower and preserve a relationship with the lender or servicer.

Taking these steps, commercial mortgage borrowers proposing a loan modification or extension to their lender or servicer may see faster responses.

Brigitte G. Kimichik, a partner in the Dallas office of Andrews Kurth LLP, practices primarily in the areas of real estate, loan originations, leasing, and for more than 20 years, distressed-loan and asset restructuring and recovery. Her experience includes forbearance agreements and settlements, loan extensions and modifications, deed-in-lieu transactions, property substitutions, foreclosures, and asset dispositions in receiverships and bankruptcies. Reach Kimichik at (214) 659-4441 or bkimichik@andrewskurth.com.

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