Even though a mortgage foreclosure might be time consuming and expensive, there may be very good reasons not to do a workout. The first and most important is the “bottom line” --- can the real estate effectively be turned around and result in repayment of the loan more efficiently than dealing with a weak borrower for years? Is there a relatively strong market for this type and location of real estate? Sometimes in a strong market, it worth going through a foreclosure if there is a strong likelihood of a quick sale at a good price which will result in full repayment of the loan.

Another reason to foreclose is lack of trust in a borrower. If a borrower has proven to be a poor manager, provides constantly late and/or inadequate financial reports to the lender, has engaged in any type of dishonesty with the lender, or simply has a poor track record since the inception of the loan, the lender might not want to do a workout and begin foreclosure proceedings. The property might also be so poorly managed that the cash flow from the property is impacted. The lender might be better off putting in professional management who it can trust and is competent to run the property.

Ultimately, the lender should conduct its own fact investigation into why the loan is not performing. Was this a poor choice of borrower to begin with, for any reason from under-capitalization to lack of experience in real estate management? Or are the problems the borrower encountering industry-wide? Has the market changed since the loan was first made, for example, office space being over-built in a certain area? Are any of the conditions which are causing the default likely to improve in the near future, or will the workout result in another default or even a bankruptcy? Counsel should encourage the lender to take a hard look at the business issues involved, as well the legal ramifications of a workout or a foreclosure. A workout could ultimately result in time lost where a foreclosure needed to be started from the onset.