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July 21, 2015Published Article

Forbearance Arrangements Can Have Value For Debtors

Law360

According to the Seventh Circuit, the value of a forbearance arrangement can be counted along with the amounts due on outstanding loans as part of the “reasonably equivalent value” given by a lender for a deed in lieu of foreclosure.

It is a common scenario. The borrower defaults on a real estate loan. The bank and the borrower enter into a series of forbearance agreements, including one requiring the borrower to put in escrow a deed to the mortgaged property, enabling the bank or its designee to take that deed in lieu of foreclosure upon the borrower’s next default. Default occurs and the deed is recorded.

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