workout (agreement) Definition | Business Dictionaries from AllBusiness.com
Facebook Twitter You Tube RSS Feed

Business Glossary

SEARCH THE BUSINESS GLOSSARY

Search Business Glossary:

Business Definition for: workout (agreement)
Dictionary of Real Estate Terms
workout (agreement)

a mutual effort by a property owner and lender to avoid foreclosure or bankruptcy following a default ; generally involves substantial reduction in the debt service burden during an economic depression.

Example: Because of an economic slowdown, the hotel suffered high vacancy rates and failed to generate enough income to meet mortgage payments. The owner approached the lender about a workout. It was agreed to reduce the outstanding loan principal and extend the maturity date to reduce the debt service. In turn the lender would participate in the income when the economy recovered and hotel income exceeded a specified amount. See participating mortgage .

See also cash flow mortgage , distressed property
Related Terms:
cash flow mortgage

debt instrument under which all or nearly all the cash flow generated by the rental income is paid to the lender. There is no stated interest rate.

Example: An office building was in financial distress because of a weak market. The building owner could not meet required mortgage payments from the rental income at the contract rate of interest. Rather than foreclosure (which may not help the lender because of the soft market), the lender agrees to convert the mortgage to a cash flow mortgage. Under this arrangement, all the property's Net Operating Income is paid to the lender for an agreed-upon period of time. Thus, the mortgage lender receives all the cash flow from the property.

distressed property

real estate that is underforeclosure or impending foreclosure because of insufficient income production.

Referring Terms:
distressed property
loan modification
recasting
Copyright © 2004, 2000, 1997, 1993, 1987, 1984 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Back to Business Glossaries Home

AllBusiness Greatest Hits