Drafting Errors - Routinely Cost Lenders’ Post-Bankruptcy Attorney’s Fees and Interest

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Originally published in Community Banker - Spring 2013.

When a bankruptcy intervenes to prevent the continuation of a restructuring or loan enforcement effort, it is too late to supplement or strengthen loan documentation. Lenders are then stuck with what is — and sometimes more significantly — what is not in their existing loan documentation. Unfortunately, critical loan enforcement remedies and claim amounts may depend on not just the underwriting decisions relating to the loan itself or the value of any pledged collateral, but also on the scope and precision of what is sometimes derisively referred to as the “boilerplate provisions” in loan documents.

Sometimes lawyers prepare documents that contain paragraphs of mind-numbing complexity over simple, direct language. However, in the context of post-default loan enforcement, simple and direct language is at the core of the problem, resulting in omission or inadvertant waiver of important rights when the time comes to enforce the loan.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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