Why would lenders attempt to workout defaulted mortgage loans?
Once a mortgagor (borrower) has defaulted, it is often advisable to continue exploring constructive solutions to avoid the expense associated with foreclosure and resale of the collateral. Because workouts involve both parties working together to protect each other’s common interests, lenders who work jointly with their borrowers to avoid the foreclosure process often have great successes in preserving customer relationships and the integrity of the commercial projects that may be associated with the particular distressed loan. An effective and successful workout requires that both parties take reasonable steps to protect the value of the collateral in order to maximize its ultimate worth and thereby protect the investments of both the borrower and the lender in the project. In practice, there is no standard form of workout. Each workout is unique, as it is usually a reaction to a sudden and dramatic change in the fortunes of a project or business. Prudent lenders understand that under