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:

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

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

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)