February 18, 2012 at 10:34 pm #2442commonbankerParticipant
I’ve worked for a small handful of banks that all had a nearly identical procedure regarding the renewal of a matured loan…and I’m primarily referring to commercial loans. We would update any personal and/or business financial statements that weren’t current. Revise and/or update our credit analyses and memos and present the loan for renewal to the appropriate loan committee if the credit exceeded the loan officer’s lending authority. If/when approved, a new note was prepared, a new loan number was assigned, and once executed, the loan was renewed. Fairly straightforward.
I’ve joined a new bank and we have a rather unusual practice. Most of the time, we renew the loans as described above. However, if the loan has matured, and the lender is unable to get the renewed note prepared and executed before the end of the month (i.e., the loan will carry past 30 days and have to be reported), we will generate a one-page form that the loan officer and the borrower sign (although I’ve found several in files without customer signature) that the bank relies upon to conveniently extend the maturity date on the loan. I don’t know how prevalent the form is, or if there are any guidelines for its usage. The form would allow for any extention imaginable.
I hope this is a legitimate practice but fear that it is not. If it was that easy to renew a loan, why do we jump through all the traditional hoops to renew other loans? Would anyone like to wade in on this? Thanks!!!February 21, 2012 at 3:08 pm #2875commonbankerParticipant
Wow…noone willing to wade in? This is either to obvious to deserve a response or a grey area. I personally think it’s black and white. A promissory note is a contract…and can only be extended past the maturity date by executing a new promissory note.
Surely that will spur some interest in the contrary group? Would like to hear an opposing argument.
Thanks!!February 21, 2012 at 4:40 pm #2877jholzknechtKeymaster
The practice you describe sounds like an extension/modification agreement. If that is the case, it is very common practice in many states.
Personally I prefer a thoroughly underwritten new note, but extension/modification agreements are recognized by courts as an effective tool. The extension/modification agreement is a two party agreement and therefore should bear the signature of the bank and the borrower. Seek guidance from your legal counsel on whether an unsigned agreement is enforceable.
Recently some examiners have raised an issue regarding using extension/modification agreements on loans that have already matured, but many banks have successfully followed that practice for many years.
The issues raised in the two prior paragraphs are not a concern when a properly completed new note is used.
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