Pre-Negotiation Agreements – Beware the Lurking Danger

Pre-Negotiation Agreements – Beware the Lurking Danger

Watch any reality cop show and you will likely hear the words, “Anything you say can and will be used against you.” Pre-Negotiation Agreements (often called PNAs) are much the same. Many unscrupulous lenders will stuff these agreements with one-sided waivers and clauses favoring the bank. Sign it and you may give up your rights.

The purpose of a PNA is to manage the expectations between borrower and lender and set ground rules for how negotiations are to take place. These agreements are common when a dispute arises between a lender and borrower. They should be simple but, in our experience, lenders often use them to take advantage of vulnerable borrowers.

In their pure form, PNAs can be helpful for both parties and give both sides some breathing room. One of the most common elements of a pre-negotiation agreement is an acknowledgement that there is no deal until any agreement is reduced to writing and signed by all parties. Here is a sample,

No statement made by any Party in connection with any discussions or this Agreement shall be relied upon by the other until an agreement reflecting the same is reduced to an express written agreement, approved and executed by all Parties in their sole discretion, and the Loan Documents are modified, if necessary. No agreements, representations or warranties shall be binding or effective unless agreed to in writing by the Parties.”

Other typical clauses include an agreement that discussions can’t be used as evidence and acknowledgment that no one waives their rights. Once again, common sense says that the parties should be able to speak freely during negotiations.

Here is an example of a typical pre-negotiation agreement confidentiality clause:

“The Parties further acknowledge that they have entered into this Agreement in order to facilitate Discussions, if any, in an open, frank and direct manner without risk  of exposure  to liability as a result thereof and in order to arrive at a resolution of the matters giving rise to the Discussions acceptable to the Parties. Any and all Discussions shall be deemed to be discussions in the nature of settlement negotiations and shall be kept confidential and neither the Parties nor any third party shall have the right to rely upon or to use the fact or content of any such Discussions (or the lack thereof) in connection with the exercise of any right, remedy or defense under the Loan Documents or in any action at law or in equity arising therefrom or otherwise arising from the relationship between the Obligor and Creditor, and no statement (oral or written) made by any Party to the other in the course of the Discussions shall be deemed, in any proceeding at law or in equity involving the Loan Documents or the Loan described herein, (i) an admission of any fact; or (ii) evidence or probative of any act or omission to act, or intent of any party.”

A mutual “no waiver” clause also makes sense. Banks fear that by entering into negotiations, a borrower could argue the bank waived its right to foreclose or engage in collection action. Both sides frequently don’t want to be forthcoming if they have to worry that any concession offers or compromises can be used in a subsequent trial.

All of this sounds great and often borrowers sign pre-negotiation agreements without reading them. They do so at their peril!

One problem we often find is an acknowledgment of default by the borrower. Another common clause is an acknowledgment that the loan is immediately due and payable. Unscrupulous lenders use these clauses to clean up problem loan documents and strengthen their position. They promise to negotiate in good faith but use the PNA as a device to back the borrower into a corner. Once the borrower acknowledges default, the lender holds all the cards.

Lenders claim these agreements are a mere formality that must be signed in order to allow the bank to negotiate. That is nonsense!

If you are confronted with a PNA that contains an acknowledgment of default, we suggest modifying the agreement to merely say that the lender alleges a default. The lender or loan servicer should have no objection to making the language neutral. If they refuse, you know the lender isn’t playing fair. Hire a good lender liability lawyer and get ready for a big fight.

Another common trap is a one-sided clause that says the lender isn’t bound by any interim verbal or written agreements. Shady lenders want the ability to back out while trapping the borrower into being bound by any concessions the borrower may have made during negotiations.

Affirmance of loan documents is another trap. It is probably okay for an agreement to affirm that the loan documents say what they say. Once again, some lenders add language to say the lender has a perfected security interest in certain assets.

The typical pre-negotiation agreement has a no waiver clause. If it is fair, the clause should read that neither party waives any rights they may have under the loan documents or law. We have seen agreements, however, where only the borrower waives its rights. Sign the agreement and the bank has you where they want you.

It is okay for the agreement to waive future claims stemming from the workout but not for past liability. Again, we often see once sided waivers drafted in favor of the bank.


We are supportive of Pre-Negotiation Agreements. If properly drafted they can protect both borrower and lender and give the parties some breathing room to have open and frank discussions. Unfortunately, many lenders and special servicers use them as shield to keep from being sued for their wrongful acts.

Because of the prevalence of default acknowledgements and waiver clauses, we always recommend being represented by counsel before signing a PNA. Remember, even without a lawyer, courts will assume borrowers in commercial transactions are financially sophisticated.

Similar to pre-negotiation agreements, we share many of the same concerns with lender prepared forbearance agreements.

The lender liability lawyers at Mahany Law and Judge, Lang & Katers sue banks. Unlike most lawyers practicing banking law, we represent borrowers, not banks. Our national boutique practice is dedicated to representing medium and large borrowers and property owners. [We limit our practice to transactions where potential losses exceed $5,000,000.00.]

We handle cases nationwide. Often we partner with a borrower’s existing counsel to add our muscle and experience. For more information, visit our Theories of Liability page. Ready to see if you want to see if you have a case? Contact us online, by email [hidden email] or by phone at 877-858-8018. All inquiries are kept strictly confidential.

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