What Loan Covenants Actually Require
Most commercial loans require the borrower to send yearly financial statements to the lender. These are usually due within 90 to 120 days after the fiscal year ends. Many loans also require the property to meet a minimum debt service coverage ratio, often 1.25 or higher. This ratio shows the lender the property still earns enough income to cover the loan payment.
Most loans also require the borrower to notify the lender right away about certain major changes. Your death is typically one of those triggering events.
Death Does Not Pause the Deadlines
None of these requirements stop because you die. The annual reporting deadline still arrives. The debt service ratio still has to be certified. If no one has legal authority to sign that paperwork, the deadline can pass. No one is able to act in time. This is different from missing a mortgage payment. The loan can still be current on payments and still go into default, purely because a reporting deadline was missed. This is the same kind of authority gap that traps an LLC alone, with no one able to act in time.
A Missed Covenant Is Still a Default
Missing a covenant deadline is called a technical default. It does not mean a payment was missed. It means a reporting or performance requirement was not met on time. A technical default gives the lender the same rights as a missed payment. The lender can send a notice, start a cure period, and eventually call the loan due.
How Long You Have to Fix It
A typical commercial loan gives a borrower about 30 days to fix a technical default. This clock starts after the lender sends notice. If the probate court has not yet named someone to act, that window can run out. No one may have legal authority to respond in time.
What Fixing a Covenant Default Costs
A workout attorney who negotiates a covenant default typically bills $350 to $500 an hour. Some lenders will waive a default for a fee, which can run up to $25,000.
If the lender will not waive it, refinancing under pressure typically costs 2% to 4% of the loan balance. That is often $40,000 to $80,000 on a commercial property. A full real estate investor estate plan costs far less than that.
Closing the Gap Before It Opens
1
Read Your Loan Documents for Every Covenant
Reporting deadlines, the minimum debt service coverage ratio, and any required notice-of-death clause are all spelled out in the loan agreement itself.
2
Fund a Revocable Trust and Retitle the Property
This gives your successor trustee immediate authority to sign and send required paperwork, without waiting on a probate court appointment.
3
Brief Your Successor Trustee on the Loan Terms
Give them a copy of the loan documents and a plain-language summary of reporting deadlines and the debt service coverage requirement.
4
Keep a Standing Contact at the Lender
A known point of contact makes it easier for a successor trustee to notify the lender quickly.
5
Review After Every Refinance
Covenant terms change every time a loan is refinanced or modified. Update your trust briefing materials each time.
Why a Personal Guarantee Makes This Worse
If you personally guaranteed this loan, a default does not just threaten the property. It can expose your entire estate to the lender’s claim. This is the same personal guarantee risk that survives your death in Georgia. A funded trust that keeps the loan current also protects the rest of your estate from that risk. If your loan is SBA-backed, the federal government has even stronger collection powers than a private lender. For a full overview of protecting real estate investments in Georgia, see the Real Estate Investor hub.
