Forbearance Agreement

In a forbearance agreement, the borrower acknowledges that it has defaulted on its obligations, while the lender agrees that it will refrain from exercising its remedies for such defaults as long as the borrower performs or observes the new conditions set out in the forbearance agreement, and, by a certain date, cures the defaults. A forbearance agreement entered into after a maturity date default would typically provide that the lender will not exercise its rights arising from the default provided the borrower pays the lender the loan principal in installments over a stated period of time, often at a much higher rate of interest than under the original loan agreements. The lender may wish to impose additional conditions, such as requiring borrower to meet new or enhanced financial covenants or to pledge additional collateral to secure its repayment obligations.  If the borrower fails to live up to the terms of the forbearance agreement, the lender may sue the borrower for a breach of that agreement and may also exercise any of its rights under the original defaulted loan agreements.  Compare the forbearance agreement with the Glossary definition of “loan amendment agreement.”

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