loan-modification-agreement

# Loan Modification Agreement

Amends existing commercial loan terms while preserving all original security interests, guarantees, and document enforceability without novation.

## Prerequisites

Gather before drafting:

- Original loan agreement (execution date, parties, principal amount)
- All related loan documents: promissory notes, security agreements, mortgages/deeds of trust (with recording info), guarantees, subordination/intercreditor agreements
- Current outstanding principal balance
- Modification trigger: borrower request, workout, or mutual restructuring
- Confirmed corporate authority and approvals for all parties
- Any defaults to be waived (specifically identified)

## Quick Start

1. Collect all original loan documents and current balance
2. Identify specific terms being modified
3. Draft modification following the document structure below
4. Confirm no-novation language throughout
5. Verify conditions precedent are satisfied before execution

## Document Structure

### 1. Recitals

- Identify original loan agreement by date, parties (full legal names), original principal
- Reference prior modifications to establish complete chain
- State current outstanding balance, business purpose, and modification circumstances
- Confirm authority and corporate approvals obtained

### 2. Defined Loan Documents

List all documents with precise identifiers:

| Document | Defined Term | Key Identifiers |
|---|---|---|
| Original loan agreement | "Loan Agreement" | Execution date, parties |
| Promissory note(s) | "Note" | Principal amount, date |
| Security agreement(s) | "Security Agreement" | Collateral description |
| Mortgage/deed of trust | "Mortgage" | Recording info, property |
| Guarantee(s) | "Guarantee" | Guarantor name(s) |
| All collectively | "Loan Documents" | — |

### 3. Modification Terms

Draft each change as a separate numbered paragraph:

- **Interest Rate** — New rate (fixed/variable), effective date; if variable: index + margin
- **Maturity Date** — Specific new date; confirm effect on intermediate milestones
- **Payment Schedule** — Full schedule in body or Exhibit A with cross-reference
- **Principal Relief** — Exact amount of reduction/forbearance/forgiveness + conditions precedent
- **Financial Covenants** — Revised DSCR, LTV, minimum liquidity; measurement dates, reporting, non-compliance consequences
- **New Covenants** — Draft at same specificity as original agreement
- **Prepayment** — Penalties waived, modified, or newly imposed; calculation methodology

### 4. Conditions Precedent

- [ ] Execution and delivery by all parties
- [ ] Modification fee paid (amount: ____)
- [ ] Outstanding default interest/late charges addressed
- [ ] Updated financial statements / borrowing base certificates
- [ ] Guarantor reaffirmation agreements executed
- [ ] Updated legal opinions (if required)
- [ ] Evidence of insurance with lender loss payee endorsements
- [ ] Updated UCC lien searches — no intervening liens
- [ ] Organizational documents, good standing certificates, authorizing resolutions

### 5. Representations and Warranties

Borrower represents as of modification date:

- Full power and authority; modification duly authorized
- No violation of applicable law or binding agreement
- All original Loan Document reps/warranties remain true except as disclosed
- No uncured default except as specifically waived herein

### 6. Reaffirmation and No-Novation

Required express language:

- All Loan Document terms remain in full force except as expressly modified
- All security interests, mortgages, and liens continue securing obligations as modified
- **Modification does not constitute a novation or release of any obligation**
- Lender reserves all rights and remedies under the Loan Documents
- Guarantors confirm guarantees cover modified obligations; consent without release or discharge

### 7. Release/Waiver Provisions

Include only in workout scenarios:

- If lender grants concessions → borrower release of claims (known/unknown; verify state-law requirements)
- Identify waived defaults specifically by name/date
- State whether waiver is limited to enumerated defaults or forward-looking
- Include reservation of rights for future defaults

### 8. Fees and Expenses

- Modification fee: amount and due date
- Borrower reimburses lender for: attorneys' fees, appraisals, environmental assessments, UCC searches, recording costs
- State whether fees added to loan balance or paid separately

### 9. Boilerplate

| Provision | Notes |
|---|---|
| Severability | Standard |
| Governing law | Same jurisdiction as original Loan Agreement |
| Jurisdiction/venue | Restate or confirm from original |
| Counterparts / e-signatures | Facsimile and electronic signatures binding |
| Jury trial waiver | Confirm continuation or restate |
| Integration clause | Modification + Loan Documents = entire agreement |
| No oral modification | Written agreement of all parties required |
| Time is of the essence | Include if time-sensitive performance obligations |

### 10. Signature Blocks

- Corporate borrower: authorized officer name + title; consider secretary attestation
- Lender: appropriate signatory authority
- Multiple borrowers/lenders: separate block for each
- Notarization if modification will be recorded
- Notice address schedule for all parties

### 11. Exhibits

| Exhibit | Contents |
|---|---|
| A | Amended/restated promissory note (if note modified) |
| B | Revised payment schedule / amortization table |
| C | Updated legal description of collateral (if modified) |
| D | Form of guarantor reaffirmation |
| E | Updated borrowing base certificate (if applicable) |

## Critical Checks

- **No novation** — Never use language suggesting new obligation replaces old; confirm expressly
- **Security interest continuity** — No gap in perfection; re-file UCC amendments if collateral description changes
- **Usury compliance** — Verify new rate does not exceed applicable state usury ceiling
- **Cross-default** — Check whether modification triggers cross-default in borrower's other agreements
- **Intercreditor/subordination** — Obtain consent from subordinate or senior lienholders if required
- **Guarantor protections** — Include explicit consent and waiver of suretyship defenses for each guarantor
- **GAAP/tax impact** — Flag debt modification vs. extinguishment analysis (ASC 470 10% test) and COD income risk if principal forgiven
- **TILA/Reg Z** — Confirm consumer lending disclosures not triggered (verify if any consumer guarantors)