A leniency agreement is called this because a party agrees to create remedies at its disposal for a certain period of time, provided certain conditions are met. Whether a lender is willing to enter into such an agreement and over what duration depends on a number of factors. The borrower must resume the full payment at the end of the period, plus pay an additional amount to receive the missing payments, including principal, interest, taxes and insurance. The terms of the agreement vary depending on the lender and the situation. In these cases, it may be in the interests of both the company and the lender to reach an agreement that reduces the pressure on the business and allows it to rebuild. A leniency agreement is a possible solution. Leniency can also occur for other types of loans, as may be the case for student loans. For example, the U.S. Congress recently passed the CARES Act to address the economic consequences of COVID-19. The package contained provisions relating to student credit leniency.
Some national governments have also adopted their own leniency rules in the middle of the pandemic In some cases, the lender grants the borrower a complete moratorium on mortgage payments during the leniency period. In other periods, the borrower is required to pay interest but not to pay the principal amount. In other cases, the borrower pays only a portion of the interest with the unpaid portion that results in negative amortization. Another leniency option is for the lender to temporarily lower the borrower`s interest rate. When a company is faced with a short-term cash flow problem or a crisis arises, the ability to negotiate with creditors can mean the difference between a difficult period and closing doors forever. Our experienced business lawyers can help you create the strongest case for leniency and then negotiate on your behalf to increase your likelihood of success. There is more uncertainty than certainty about the economic outlook in response to COVID-19. One certainty is that defaults will increase. Those of us who have been through the Great Recession have learned many valuable (if not painful) lessons in credit training and restructuring.