How Do Servicers Negotiate? - Bilateral Agreements

Legal Insight

March 2025

George Psarakis, LL.M. (mult.), Pgert

(Republished from Euro2day.gr)

Summary: While OCW settlements are increasing, a significant portion of business loan restructuring agreements are concluded within Servicers' offices through direct negotiations. As the Ministry of Finance states, "The first option available to borrowers is direct bilateral agreements with banks or servicers to settle their debts based on each institution's policy." However, it is interesting to highlight the negotiation tactics some Servicers employ in reaching these agreements. This article, prompted by a recent court ruling, discusses strategies used in negotiating the settlement of non-performing business loans.

We have often emphasized that for a Servicer, the critical factor is the liquidatable assets of the business and its guarantors, as these assets ultimately determine the possibility of repayment. This is particularly relevant when the business lacks the financial flows to support a repayment plan. If a foreclosure is imminent, the chances of reaching an agreement without a substantial upfront payment diminish significantly.

Recently, the Athens Court of First Instance issued decision no. 1042/2025, which annulled a foreclosure continuation notice against a guarantor of a business loan. The case's background is of interest to all parties dealing with Servicers, as it sheds light on the negotiation tactics they may encounter.

In this case, the guarantor was engaged in negotiations with the Servicer and had agreed on a final repayment amount in 2023. The only remaining issue was the repayment period, with the Servicer insisting on full payment within five months. As the guarantor could not meet this demand, negotiations stalled amid intense disputes. After a year and a half, the Servicer initiated a new foreclosure process. During a subsequent online meeting, the guarantor proposed to settle the agreed amount over two years, with approximately 35% paid upfront. The Servicer requested a short period to reassess the encumbered real estate. However, two weeks later, it rejected any settlement proposal, stating: "Our recovery through the foreclosure process is significantly higher than through the proposed repayment plan, leading to its rejection."

The peculiar aspect was that, 1.5 years earlier, the same Servicer had proposed a repayment plan for a fixed amount but within five months. Following the rejection, the guarantor took legal action, and the Athens Court of First Instance ruled that the Servicer’s conduct was abusive. The decision stated:

"Although the respondent was aware of the financial situation of the debtor company and its guarantors, who were in a phase of recovery from previous years of economic crisis, it demanded, on May 31, 2023, the payment of the agreed amount… within an unreasonably short period, specifically… within one month from the agreement, and the remaining… within five months. By failing to allow a reasonable repayment period spanning several years, rather than just a few months, it proceeded with the foreclosure continuation notice. Even after the recent online meeting on January 15, 2025, it rejected the guarantor’s proposal to pay… upfront and settle the remaining debt over two years. It then withdrew from its original position without any clear justification, merely citing vague claims about an alleged increase in the value of the seized properties, making foreclosure the more beneficial option for the creditor."

Following this ruling, the Servicer returned with a new settlement proposal demanding approximately 22% more than its original offer in 2023, without providing any further justification or explanation.

This case illustrates that, particularly in business loans, negotiations do not always follow objective rules and verifiable financial calculations. The out-of-court settlement mechanism attempts to introduce such objectivity through an algorithm-based proposal system, which, while sometimes unfair, at least applies uniform criteria. In bilateral negotiations, however, the stronger party often dictates terms. At times, negotiations feel like a marketplace bargain—especially when asking how the settlement amount was determined, only to receive responses such as, "The financial data provided was deemed unreliable," or even that "The mere fact that a debtor seeks legal counsel and resorts to litigation suggests greater financial capacity than they claim."