Loan Workouts Without Legal Fallout: Practical Guidance from David Lutz Attorney

 

Loan workouts are often the most delicate phase of a lender–borrower relationship. They require flexibility, negotiation, and judgment—yet they also present some of the highest legal risks for banks and credit unions. When not handled carefully, a workout intended to stabilize a loan can become the foundation for borrower claims of bad faith, broken promises, or lender misconduct.

According to David Lutz Attorney, a Minnesota commercial lawyer who regularly advises financial institutions, successful workouts depend as much on legal structure as on financial analysis.

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Why Workouts Create Litigation Risk

Borrowers in distress are often searching for certainty. When lenders provide informal assurances or inconsistent messages during a workout, borrowers may later claim those statements amounted to enforceable promises.

In litigation, workout discussions are frequently reframed as evidence that:

• The lender agreed to extend credit

• Defaults were waived

• Enforcement rights were suspended indefinitely

David Lutz Attorney notes that many lender liability claims arise not from aggressive enforcement, but from poorly documented leniency during workout negotiations.

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Structure Is Not the Enemy of Cooperation

Some lenders worry that formal documentation will derail negotiations or signal distrust. In reality, structure protects both sides.

Well-drafted forbearance or modification agreements clarify expectations and reduce misunderstandings. According to David Lutz Attorney, effective workout agreements should clearly state:

• Existing defaults are acknowledged

• Any forbearance is temporary and conditional

• No future accommodations are implied

• All lender rights are expressly preserved

This clarity allows lenders to work cooperatively with borrowers without sacrificing legal protections.

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Avoiding the “Implied Promise” Trap

Courts frequently examine whether a borrower reasonably relied on lender statements. Casual language such as “we’ll revisit this later” or “as long as things improve, you’re fine” can be mischaracterized as commitments.

David Lutz Attorney advises lenders to adopt a disciplined communication approach during workouts:

• Use written summaries after meetings

• Avoid predictive statements about future decisions

• Route concessions through formal approvals

• Ensure communications align with written agreements

Precision in language is not cold—it is protective.

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Consistency Matters More Than Intent

Lenders often assume that good intentions will protect them. Unfortunately, litigation focuses on actions, not motives. Inconsistent handling of similar borrowers can support claims of unfair dealing, even where no misconduct was intended.

Applying workout policies consistently—and documenting why exceptions are granted—significantly reduces exposure. As David Lutz Attorney emphasizes, consistency is one of the strongest indicators of good faith in the eyes of the court.

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When to Shift From Workout to Enforcement

One of the hardest decisions lenders face is determining when a workout is no longer productive. Delaying enforcement too long can weaken the lender’s position and create additional borrower arguments.

Early involvement of counsel can help lenders evaluate:

• Whether continued forbearance increases legal risk

• How to transition cleanly from workout to enforcement

• How to issue default notices without undermining prior agreements

David Lutz Attorney regularly advises that a well-executed transition is often more defensible than prolonged, informal negotiations.

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Conclusion

Loan workouts are valuable tools, but they must be handled with discipline and legal awareness. Informality, inconsistency, and vague communications are the primary drivers of lender liability claims—not enforcement itself.

By structuring workouts carefully, documenting every concession, and maintaining consistent messaging, lenders can support borrower recovery efforts while preserving their legal rights. As David Lutz Attorney advises financial institutions, the goal of a workout should always be clarity first, flexibility second.

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Disclaimer
This article is for informational purposes only and does not constitute legal advice. No attorney-client relationship is created. Financial institutions should consult qualified legal counsel regarding their specific circumstances.

David Lutz Attorney Explains Minnesota Foreclosure Strategy for Lenders

 

When a Minnesota mortgage loan goes into default, lenders often focus immediately on enforcement. However, as David Lutz, attorney representing banks and secured creditors, frequently advises, foreclosure success depends less on urgency and more on selecting the correct legal path at the outset. In Minnesota, that choice is typically between foreclosure by advertisement and foreclosure by action—two options with very different consequences for cost, leverage, and recovery.

Understanding how these foreclosure methods operate in practice allows lenders to align legal strategy with business objectives while avoiding unnecessary risk.

Foreclosure Strategy Begins at Default

Foreclosure is not a mechanical process. The method chosen determines whether the lender prioritizes speed, cost containment, or post-sale recovery. Key factors that should be evaluated immediately upon default include:

• Condition and value of the collateral

• Borrower solvency and guarantor exposure

• Existence of title defects or competing liens

• Desire or need to pursue a deficiency judgment

• Regulatory and compliance considerations

Failing to assess these factors early can lead to selecting a foreclosure method that limits recovery or increases litigation risk.

Foreclosure by Advertisement: Efficiency with Limits

Foreclosure by advertisement is Minnesota’s non-judicial foreclosure process. It is commonly used because it avoids court involvement and typically results in a quicker sale. For loans where the collateral value is expected to satisfy the debt and no deficiency recovery is anticipated, this method often makes economic sense.

However, foreclosure by advertisement is unforgiving. Minnesota courts strictly construe every statutory requirement, including:

• Proper recording of the mortgage and all assignments

• Accurate and timely statutory notices

• Compliance with publication and service rules

• Satisfaction of foreclosure prevention and loss mitigation requirements for residential property

Even minor defects can invalidate the foreclosure, forcing lenders to restart the process and absorb additional expense. Moreover, when a six-month or five-week redemption period applies, the lender generally forfeits the right to pursue a deficiency judgment.

Foreclosure by Action: Preserving Leverage

Foreclosure by action proceeds through the court system and requires filing a lawsuit. While slower and more expensive, this method offers advantages that are critical in higher-risk cases.

Judicial foreclosure preserves the lender’s right to seek a deficiency judgment against borrowers and guarantors. It also allows the court to resolve title issues, lien priority disputes, and document defects that could otherwise cloud title after a non-judicial sale.

For commercial loans, distressed assets, or transactions involving guaranties, foreclosure by action often provides necessary leverage—even when the upfront costs are higher.

Redemption Periods and Business Planning

Minnesota’s statutory redemption periods directly affect foreclosure timelines and asset disposition planning. While six months is standard, certain properties carry twelve-month redemption periods, and abandoned residential properties may qualify for a shortened five-week period.

These timelines impact when title vests, when the property can be marketed free of redemption rights, and how long capital remains tied up. Accurate identification of the applicable redemption period is essential for forecasting recovery and managing portfolio risk.

Deficiency Judgment Considerations

Deficiency exposure is often the deciding factor in foreclosure strategy. Foreclosure by advertisement typically eliminates the ability to pursue a deficiency, regardless of the gap between sale proceeds and the outstanding debt.

Foreclosure by action, by contrast, allows lenders to pursue personal liability where justified. When borrowers or guarantors have collectible assets, judicial foreclosure may significantly improve recovery outcomes.

Compliance and Risk Management

Foreclosure decisions are increasingly scrutinized from a compliance perspective. Residential foreclosures, in particular, require strict adherence to counseling, loss mitigation, and dual-tracking restrictions. Noncompliance can delay enforcement or expose lenders to borrower defenses and regulatory risk.

Selecting a foreclosure method without accounting for these compliance obligations can be more costly than choosing the slower judicial route from the beginning.

Conclusion

Effective foreclosure strategy in Minnesota requires more than selecting the fastest option. It requires a disciplined assessment of risk, recovery potential, and statutory constraints. Foreclosure by advertisement offers efficiency but limits leverage. Foreclosure by action preserves rights but demands patience and investment.

By aligning foreclosure method with loan-specific risk factors and business objectives, lenders can reduce enforcement risk and improve overall recovery outcomes.

Disclaimer:
This article is for informational purposes only and does not constitute legal advice. No attorney-client relationship is created by its publication.

David Lutz Attorney on Secured Transactions, Litigation, and Protecting Creditor Rights

 In commercial lending and business finance, the difference between recovery and loss often comes down to how well creditor rights are established, perfected, and enforced. Secured transactions and related litigation demand precision, foresight, and a deep understanding of both statutory law and courtroom realities. David Lutz has built a practice centered on protecting creditor rights through disciplined transactional planning and strategic litigation.

With more than 25 years of experience, David Lutz advises financial institutions, businesses, and secured creditors on how to minimize risk and maximize enforceability at every stage of a transaction.

The Foundation: Properly Structured Secured Transactions

A secured transaction is only as strong as its documentation and perfection. David Lutz counsels lenders and businesses on structuring secured credit arrangements that withstand scrutiny from borrowers, competing creditors, trustees, and courts.

His work in this area includes:

• Drafting and negotiating security agreements

• Preparing and filing UCC financing statements

• Advising on collateral descriptions and scope

• Structuring guarantees and cross-collateralization

• Addressing after-acquired property and proceeds

David’s approach emphasizes clarity and enforceability. By anticipating how documents will be interpreted in a dispute, he helps clients avoid common drafting flaws that can undermine a secured position.

Mastery of UCC Article 9

UCC Article 9 governs most secured transactions, but its complexity creates frequent traps for the unwary. David Lutz is particularly valued for his in-depth understanding of Article 9 and its practical application.

He advises clients on:

• Perfection by filing, possession, or control

• Deposit Account Control Agreements (DACAs)

• Priority rules and exceptions, including PMSIs

• Competing liens and creditor hierarchies

• Continuation, amendment, and termination issues

Because David regularly litigates Article 9 disputes, his transactional advice is informed by real-world outcomes—not just statutory theory.

Protecting Creditor Rights When Disputes Arise

Even well-documented transactions can end in conflict. When borrowers default or competing claims emerge, creditors need swift and decisive legal action. David Lutz represents secured creditors in disputes involving:

• Lien priority contests

• Challenges to perfection or attachment

• Claims by unsecured or junior creditors

• Disputes arising in insolvency and workout contexts

His litigation experience allows him to assess strengths and weaknesses early, develop leverage, and pursue strategies that protect recovery.

Litigation That Supports, Not Undermines, Business Goals

Commercial litigation can quickly become expensive and disruptive. David Lutz approaches creditor litigation with a focus on outcomes, not theatrics. His strategy emphasizes:

• Early case assessment and risk analysis

• Targeted motion practice, including summary judgment

• Strategic use of enforcement remedies

• Negotiation informed by litigation readiness

Clients benefit from an attorney who understands when to press aggressively and when resolution serves their broader business interests.

Enforcement and Remedies

Protecting creditor rights ultimately requires enforceable remedies. David Lutz assists clients with the full range of enforcement options available to secured creditors, including:

• Collateral repossession and disposition

• Foreclosure actions

• Appointment of receivers

• Enforcement against guarantors

His experience ensures that enforcement actions comply with statutory requirements while preserving claims and minimizing exposure to counterclaims.

Why Experience Matters in Secured Transactions

Secured transactions sit at the intersection of contract law, statutory compliance, and litigation risk. Errors in any one area can jeopardize an otherwise sound credit decision. David Lutz’s combined transactional and litigation background gives clients a comprehensive perspective that few attorneys can offer.

Rather than treating documentation and litigation as separate disciplines, David integrates them into a single strategy designed to protect creditor interests from origination through enforcement.

Conclusion

Secured transactions and creditor rights require more than form documents and reactive litigation. They require foresight, technical knowledge, and strategic execution. David Lutz Attorney provides lenders and businesses with practical legal guidance grounded in decades of experience protecting secured positions and enforcing creditor rights.

For clients navigating complex credit arrangements or high-stakes disputes, David Lutz offers the clarity, judgment, and advocacy needed to protect what matters most.

David Lutz Attorney: Practical Legal Guidance for Banks, Businesses, and Secured Lenders

 In an increasingly complex commercial and regulatory environment, banks, financial institutions, and business owners need legal counsel who understands both the law and the realities of modern commerce. David Lutz is a highly experienced commercial attorney based in Minneapolis, MN, known for delivering practical, results-oriented legal guidance to lenders, businesses, nonprofits, and individuals. With more than 25 years of experience, David Lutz brings a balanced approach that integrates transactional insight with proven litigation strategy.

A Practice Built on Real-World Business Experience

David Lutz Attorney focuses on commercial law matters where legal precision and business judgment must work hand in hand. His clients include banks, credit unions, secured lenders, closely held companies, real estate investors, and nonprofit organizations. Rather than offering purely academic legal advice, David emphasizes solutions that align with a client’s operational goals, risk tolerance, and long-term strategy.

Operating from Minneapolis, MN, David’s practice reflects a deep understanding of Minnesota business law as well as federal court practice. He is licensed in Minnesota state courts and the U.S. District Court for the District of Minnesota, allowing him to represent clients seamlessly in both transactional matters and litigation.

Trusted Counsel to Banks and Financial Institutions

Financial institutions face constant pressure to manage credit risk, comply with regulatory requirements, and respond swiftly when loans default. David Lutz Attorney regularly advises lenders on the full lifecycle of commercial credit transactions—from origination through enforcement.

His experience includes drafting and negotiating loan documentation, security agreements, financing statements, deposit account control agreements (DACAs), participation agreements, and intercreditor arrangements. By carefully structuring secured transactions under UCC Article 9, David helps lenders protect collateral positions and minimize exposure before problems arise.

When disputes occur, David brings extensive experience enforcing secured creditor rights. He represents lenders in lien priority disputes, borrower defaults, collections, foreclosures, and receiverships. Having successfully defended first-position liens and resolved complex priority conflicts, he understands how documentation choices made at the outset can determine outcomes in litigation.

Strategic Representation for Businesses and Owners

Businesses in Minneapolis, MN and throughout the region rely on David Lutz Attorney for clear, strategic legal advice tailored to their specific industries and challenges. He assists clients with contract drafting and negotiation, corporate governance, real estate transactions, and dispute resolution.

Whether advising on a commercial lease, negotiating a purchase or sale agreement, or resolving a breach of contract dispute, David’s approach is grounded in efficiency and clarity. He understands that prolonged uncertainty can be costly, and he works to resolve matters in a way that protects the business while controlling legal expense.

David’s litigation background is particularly valuable for business owners. He has represented clients in commercial lawsuits involving contracts, real estate, secured transactions, and enforcement actions. His courtroom experience informs his transactional work, allowing him to anticipate how agreements may be scrutinized if disputes arise.

Experience That Delivers Practical Value

Over the course of his career, David Lutz has negotiated real estate transactions exceeding $100 million and handled high-stakes commercial disputes involving significant financial exposure. This level of experience allows him to identify issues early, provide realistic risk assessments, and guide clients toward informed decisions.

In addition to representing banks and businesses, David also serves as legal counsel to nonprofit and religious organizations. His work in this area includes governance advice, employment matters, and transactional support, reflecting a thoughtful and tailored approach to organizations with unique legal and operational considerations.

A Responsive Legal Partner in Minneapolis, MN

Clients value David Lutz Attorney for his responsiveness, clarity, and practical mindset. Based in Minneapolis, MN, he offers accessible counsel to clients who want direct answers and actionable guidance—not unnecessary complexity. His goal is always to move matters forward efficiently while protecting his clients’ legal and financial interests.

For banks, secured lenders, and businesses seeking experienced commercial counsel, David Lutz provides a steady, knowledgeable presence in an often unpredictable legal landscape. His combination of transactional skill and litigation experience makes him a trusted advisor for clients who need legal solutions that work in the real world.

• David Lutz Attorney Explains Purchase Money Priority Under the UCC
• David Lutz Attorney on Purchase Money Security Interests and Lien Priority

David Lutz Attorney Discusses Check Fraud Risks for Banks and Businesses

 

Although electronic payments continue to expand, check fraud remains a persistent and costly problem for financial institutions and businesses. Criminal schemes have become more sophisticated, internal control failures remain common, and the legal rules governing check fraud place specific—and sometimes unexpected—responsibilities on both banks and account holders.

For banks and businesses alike, understanding how check fraud occurs, how liability is allocated under the Uniform Commercial Code (UCC), and what steps must be taken to prevent and respond to fraud is essential to limiting losses and preserving legal rights.

Why Check Fraud Remains a Significant Risk

Checks continue to be used for payroll, vendor payments, rent, and high-dollar transactions. Unlike many electronic payments, checks involve multiple parties, delayed settlement, and physical instruments—factors that create opportunities for fraud.

Fraudsters exploit gaps in mail security, internal accounting controls, and bank processing systems. When fraud occurs, disputes often turn on whether each party exercised “ordinary care” as required by the UCC.

Common Check Fraud Schemes Affecting Banks and Businesses

Counterfeit Checks

Counterfeit checks are created using real account and routing numbers obtained through data breaches or insider access. These checks often look authentic and may clear initial screening. Banks face exposure when counterfeit checks are paid, particularly if detection systems fail to flag unusual activity.

Forged Drawer Signatures

Forged checks typically involve stolen blank check stock. Under UCC rules, a forged drawer signature generally renders the check not properly payable, placing the loss on the paying bank unless customer negligence substantially contributed to the fraud.

Payee Alteration

In payee-alteration schemes, a legitimate check is intercepted and altered—often through chemical “washing”—to change the payee name. These cases frequently shift liability to the depositary bank under UCC warranty provisions.

Check Kiting

Check kiting exploits float time between banks to create artificial balances. While large-scale kiting has declined due to improved monitoring, it remains a risk where banks or businesses delay reconciliation or rely on uncollected funds.

UCC Framework Governing Check Fraud Liability

Check fraud liability is governed primarily by Articles 3 and 4 of the Uniform Commercial Code. These provisions allocate losses based on fault, timing, and compliance with statutory duties.

Key Provisions Affecting Banks and Customers

• UCC §§ 3-404 to 3-406 address impostor fraud, fictitious payees, and negligence contributing to forged signatures or alterations. A customer’s failure to safeguard checks or maintain reasonable controls can shift liability.

• UCC § 4-406 requires customers to promptly review statements and report unauthorized items. Failure to report within a reasonable time—often 30 days—can bar recovery, especially for repeat fraud by the same wrongdoer.

• UCC § 4-406(f) establishes statutes of limitation, generally barring claims after three years, and sometimes after one year if the customer fails to timely detect and report fraud.

Courts apply comparative negligence, allocating losses based on whether each party acted reasonably under the circumstances.

Bank Responsibilities Under the UCC

Banks must exercise ordinary care in processing checks. This includes:

• Maintaining fraud detection systems consistent with industry standards

• Reviewing high-dollar or unusual items

• Investigating visible alterations or irregular endorsements

• Monitoring accounts with known risk indicators

Beyond negligence standards, banks provide statutory warranties under UCC Article 4 regarding endorsements and alterations. These warranties can create liability even when the bank acted in good faith.

Business and Customer Responsibilities

Businesses are often surprised to learn how heavily their own practices influence liability outcomes.

Prompt Statement Review

Failure to promptly review statements and report unauthorized checks is one of the most common reasons businesses lose fraud claims. Delayed reporting can shift losses entirely to the customer.

Safeguarding Check Stock

Blank checks should be stored securely, with limited access. Sequential numbering and periodic inventory checks are essential to detecting theft or misuse.

Internal Controls

Effective controls include segregation of duties, dual-signature requirements for large checks, and restrictions on who can issue, sign, and reconcile checks.

Positive Pay and Payee Verification

Positive pay services significantly reduce check fraud losses by matching presented checks against authorized issue files. Many banks view failure to use positive pay as a factor in comparative negligence.

Best Practices for Fraud Prevention

Effective fraud prevention requires coordination between banks and businesses:

• Reduce reliance on checks by transitioning to electronic payments where possible

• Use check stock with enhanced security features

• Train employees to recognize fraud indicators

• Conduct background checks for employees with financial access

• Reconcile accounts frequently and investigate discrepancies immediately

Strong controls not only prevent fraud but also protect legal rights when disputes arise.

Responding to Check Fraud: Protecting Legal Rights

When check fraud is discovered, swift and decisive action is essential:

1. Notify the bank immediately to preserve recovery options.

2. Document the fraud, including copies of checks and account statements.

3. File a police report to establish an official record.

4. Review insurance coverage, including crime or fidelity policies.

5. Consult experienced legal counsel to assess liability and pursue recovery.

Early legal involvement can prevent procedural missteps that limit recovery.

Conclusion

Check fraud losses are not automatically borne by banks or businesses. Liability depends on the nature of the fraud, the conduct of each party, and compliance with UCC requirements. Both banks and businesses must remain vigilant, implement effective controls, and act promptly when fraud occurs.

Understanding these risks—and responding quickly—can significantly reduce financial exposure and protect legal rights.

About the Author

David Lutz is an attorney and owner of Lutz Law Firm in Minneapolis, Minnesota. He represents financial institutions, businesses, and individuals in banking law, secured transactions, real estate matters, and commercial litigation. With more than 25 years of experience, David advises clients on fraud prevention, UCC liability, and complex commercial disputes.

Contact:
david@lutzlawfirm.com
612-424-2110

Disclaimer:
This article is provided for informational purposes only and does not constitute legal advice. The information is general in nature and may not apply to your specific circumstances. Reading this article or contacting the author does not create an attorney-client relationship. For legal advice regarding your situation, consult a qualified attorney.

David A. Lutz: Six Essential Forbearance Agreement Terms That Protect Lenders

 

When a borrower defaults and asks for extra time to correct the problem, lenders often consider a forbearance arrangement instead of moving directly to foreclosure. Forbearance can serve both sides well, but only when the agreement is drafted with precision. A strong agreement preserves the lender’s rights while giving the borrower a clearly defined path to cure. The following provisions are fundamental.

What Forbearance Involves

Forbearance is not a waiver, nor is it a modification. The borrower remains in default. The lender simply agrees to pause its enforcement efforts for a set period while the borrower completes certain required steps. This distinction is important: a waiver would eliminate the existing default and require the lender to wait for a new one before taking action. Under forbearance, failure to comply with the agreement allows the lender to immediately resume enforcement.

Six Clauses That Every Forbearance Agreement Should Contain

1. Borrower’s Confirmation of Default and Waiver of Any Claims

The borrower must confirm that the loan is in default, identify each specific default, acknowledge the loan balance, and recognize the lender’s right to accelerate and foreclose. The borrower should also waive all defenses, setoffs, and counterclaims. This prevents later arguments that no default existed or that the lender’s willingness to forbear undermines the default. Agreements often state explicitly that the lender could accelerate and foreclose absent the forbearance.

2. Clear Borrower Obligations with Measurable Deadlines

The borrower’s responsibilities during the forbearance period must be precise and tied to firm dates. Examples include making specific monthly payments, delivering financial statements within a stated timeframe, or listing collateral for sale at a defined minimum price by a particular deadline. Obligations such as “improve cash flow” are too vague. The lender must be able to point to objective criteria to determine compliance. If the borrower misses any requirement, the forbearance ends immediately.

3. Events That Automatically End the Forbearance

The agreement should specify that certain events terminate the forbearance automatically and without any notice. These events typically include failing to make a required payment, committing a new default under the loan documents, making material misrepresentations, filing for bankruptcy, or having creditors file suit or liens against collateral. Once termination occurs, the lender is free to pursue all available remedies. The forbearance itself is the borrower’s opportunity to cure—no further grace period is needed.

4. A Specific End Date for the Forbearance Period

Every forbearance agreement needs a defined expiration date, usually 120–180 days from the start, unless terminated earlier under the agreement. The lender may choose to extend the period later, but the agreement should never be open-ended. Avoid duration language tied to uncertain future events, as that gives borrowers indefinite time and leaves the lender without control.

5. Safeguards That Maintain or Improve the Lender’s Position

Throughout the forbearance period, all collateral and security interests should remain fully in effect. The borrower may be required to provide additional collateral or guarantees, deliver monthly financial reporting instead of quarterly statements, supply updated collateral valuations, and cooperate fully with any sale or refinancing efforts. The lender should also retain the right to inspect collateral and business operations. All attorney’s fees, costs, and expenses must be added to the loan balance and secured by existing collateral, without any requirement that fees be reasonable. Forbearance should enhance the lender’s protections—not diminish them.

6. Explicit Statement That Loan Terms Are Not Amended

The agreement must clarify that it does not waive defaults, change any loan terms, obligate the lender to extend forbearance beyond the defined period, reduce interest rates, extend maturity dates, or limit enforcement rights. Borrowers may later argue that a forbearance arrangement suggests ongoing negotiation or relaxed enforcement. Clear language removes that argument. Modifying interest or maturity would be a formal loan modification requiring approval and could affect loss reserves, so such changes should not be part of the forbearance.

When Forbearance Makes Sense

Forbearance is appropriate when the borrower has a realistic plan to cure, when collateral still exceeds the amount owed, when the issue appears temporary, and when the cost of forbearance is lower than the cost of immediate foreclosure. It should not be used when the borrower is insolvent with no viable recovery strategy, when collateral is insufficient, when assets are being diverted or mismanaged, or when delay will worsen the lender’s position.

Conclusion

The lender begins from a position of strength: the borrower is in default, and foreclosure is an available remedy. Forbearance is a voluntary accommodation, not a requirement. Avoid vague terms, indefinite timeframes, and any limits on enforcement rights. A well-drafted forbearance agreement gives the borrower a structured chance to fix the default while preserving the lender’s ability to act swiftly if those obligations are not met.

DISCLAIMER: This article is for informational purposes only and does not constitute legal advice. It may not apply to your particular circumstances. Reading this article or contacting the author does not create an attorney-client relationship. Please consult a qualified attorney for advice regarding your situation.

About the Author:
David A. Lutz owns Lutz Law Firm in Minneapolis, representing financial institutions, businesses, and individuals in banking law, secured transactions, and commercial litigation. He can be reached at david@lutzlawfirm.com or 612-424-2110.

You can follow David Lutz on Facebook, Twitter, F6S, LinkedIn, WordPress, stck.me , Wix , Webbly and other platforms.

Attorney David Lutz on Avoiding Common Pitfalls in UCC Article 9 Secured Transactions

 Secured transactions are central to commercial lending, yet even experienced financial institutions encounter avoidable mistakes that jeopardize their lien position or enforcement rights. Attorney David A. Lutz, J.D., MBA, a Minneapolis commercial attorney with more than 25 years of experience representing banks and secured lenders, regularly advises clients on navigating UCC Article 9 with clarity and precision. According to Lutz, many of the most damaging errors occur not during enforcement, but at the earliest stages of drafting and filing.

Below are several common pitfalls lenders face—and the steps they can take to prevent them.

1. Using Inaccurate or Incomplete Debtor Names

One of the most frequent and costly mistakes in Article 9 practice is an incorrect debtor name on the financing statement. Under the UCC’s strict naming rules, even minor deviations—such as missing punctuation, abbreviations, or trade names—can render a filing “seriously misleading.”

Lutz notes that lenders should always verify the debtor name from the public record of the formation document (for registered organizations) or the individual’s exact legal name (for individual debtors). Reliance on business cards, websites, or internal forms is a common source of error and can lead to a total loss of priority.

2. Filing in the Wrong Jurisdiction

Perfection by filing must occur in the correct filing office. For most debtors, this means filing in the state of the debtor’s principal residence (for individuals) or state of organization (for entities). Lenders sometimes default to filing where the collateral is located, which may work in real-estate related filings but not for personal property under Article 9.

Lutz frequently counsels lenders on multi-state transactions where collateral, borrowers, and guarantors are located across different jurisdictions. Filing in the wrong state can be fatal to priority.

3. Failing to Describe Collateral with Sufficient Precision

Collateral descriptions that are vague, overbroad, or incomplete can create significant enforcement challenges. While Article 9 allows generic categories such as “all assets,” this language is not appropriate—nor enforceable—in all documents.

According to Lutz:

• A security agreement must reasonably describe the collateral.

• A financing statement may be broader, but it must still accurately reflect the intended scope.

• Collateral such as deposit accounts, investment property, and commercial tort claims may require heightened specificity.

Failure to tailor these descriptions can undermine enforceability in both litigation and bankruptcy contexts.

4. Overlooking the Need for Control or Possession

Many lenders assume that filing a UCC-1 is sufficient for all personal property. However, certain collateral types require perfection by control or possession, including:

• Deposit accounts

• Electronic chattel paper

• Investment property

• Money and negotiable instruments

Lutz emphasizes that lenders often lose priority to competing creditors—or even to the borrower’s depository bank—because they failed to obtain control where required. Deposit Account Control Agreements (DACAs) and properly executed custody or securities account control agreements are essential tools.

5. Not Monitoring Continuation Deadlines and Changes in Circumstances

A financing statement is generally effective for only five years unless a continuation statement is filed within the six-month window before expiration. Lenders that fail to calendar continuation deadlines risk losing their perfected status entirely.

Additionally, changes such as:

• A debtor relocating

• A merger or corporate reorganization

• A change in the debtor’s legal name

• Significant collateral disposals

may require updated filings. Lutz advises lenders to audit their loan files periodically to confirm that perfection remains intact throughout the life of the loan.

6. Delaying Enforcement Actions After Default

Once a borrower defaults, delay can erode collateral value and weaken the lender’s position. Early consultation with counsel helps lenders understand available remedies, which may include:

• Repossession or self-help remedies

• UCC foreclosure sales

• Appointment of a receiver

• Setoff rights

• Judicial enforcement

Lutz notes that lenders who prepare early—often long before default occurs—tend to preserve more collateral value and achieve more efficient resolutions.

Conclusion

UCC Article 9 presents a complex framework, but with careful attention to drafting, filing, and perfection requirements, lenders can significantly reduce their exposure. Attorney David Lutz provides financial institutions with practical, business-focused guidance designed to maintain lien priority, strengthen enforcement rights, and avoid the common pitfalls that create litigation risk.