Adjustment of the terms of a loan during its term in a way not accounted for in the original loan contract but accepted
later by mutual consent of the lender and borrower. Usually a concession to the borrower in an attempt to avoid
foreclosure.
Example: When Jim lost his job and needed two months before finding new employment, his mortgage lender
agreed to a loan modification where by Jim was able to skip one monthly payment, and the accrued interest was
added to the loan balance. When Jim resumed monthly payments, the amount of the payment was slightly higher
than before the adjustment.
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. |
