While it is important - for all parties - that a lender clearly specify the nature of the default and the reason for sending the default letter, it is also important, from a lender’s standpoint, to include language which makes it clear that it is not waiving rights with respect to other existing defaults, whether specified in the letter or not and whether known or unknown. If a lender intends to send an acceleration notice, it generally will specify the amount of the debt then due, including default interest and late charges, as applicable. Additionally, both parties should carefully consider the consequences of acceleration. Both sides to a transaction should carefully review the provisions in the loan documents to determine if, with respect to a particular default, there is a notice requirement, an opportunity to cure, and under what circumstances a lender has the right to accelerate the loan. Other defaults may not require notice and/or may not provide for a cure period. Certain defaults under loan documents require notice and then provide for an opportunity to cure.
In such a scenario, following notice provisions in the loan agreement and the mortgage/deed of trust only may not be sufficient. Additionally, the notice provisions in all loan documents should be carefully reviewed, particularly when, for example, a guarantor has signed a guaranty and an environmental indemnity agreement only.
During times such as these, it remains imperative that both parties strictly adhere to the notice requirements expressly set forth in the loan documents. The loan documents should clearly set forth the parties to whom a notice of default must be sent and how, precisely, such notice must be delivered. While not a complete list, set forth below are 5 considerations for all parties with respect to default notices: Under such circumstances, one of the first steps lenders and servicers will take will be to send out default notices to borrowers and guarantors. The economic effects of COVID-19 are likely to cause many commercial mortgage loans to go into default. Sign up for our Coronavirus roundup email.
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