Several months ago, I mused that, due to the conservative trending of commercial real estate lending, the list of “bad boy” exceptions (to a “no personal liability” deal) could be viewed as a full recourse deal. In other words, the exceptions to “no liability” could be so expansive or long, the practical reality equates to full liability.
Now you have it (no personal liability); now you don’t.
Take a look at my current list of “bad boy” carve outs:
- Unauthorized transfer (note: transfer of voting rights in borrower [or a controlling party of borrower] is an unauthorized transfer)
- Unauthorized liens
- Change in entity constituency or control
- Violation of hedge agreements, letters of credit or other contracts covering additional collateral or debt enhancement
- Failure to maintain the collateral
- Violation of key operating licenses or permits
- Breach of financial covenants & reporting covenants
- Breach of single or special purpose entity covenants
- Breach by the property manager of terms covering turnover of property and operating information
- Voluntary or involuntary Federal or state bankruptcy or insolvency proceedings, including an application for the appointment of a custodian, receiver, trustee, or examiner
- Borrower makes an assignment for the benefit of creditors, or admits, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due
- Borrower (or any person owning [directly or indirectly] an interest in Borrower) solicits, facilitates or arranges debtor-in-possession financing to Borrower in anticipation of a bankruptcy or insolvency proceeding
- Breach of cash management provisions
- Breach of insurance coverages (and failure to reimburse Lender for its cost of forced placed coverage)
- Failure to turn over tenant letters of credit, lease termination payments and space contraction payments
- Failure to deliver access and ownership of technology used in building\project\collateral operations, marketing, leasing and communication
- Failure to cooperate with Lender in any efforts to contest tax valuation
- _____________ (I’m sure that I’m missing something here)
The topic of bad boy liability will be covered by Jim Wallenstein at the up-coming University of Texas Law School’s Mortgage Lending Institute (I’ll be talking on technology issues – more on that later). I can’t wait to hear Jim’s spin on all of this.
Give us your spin by commenting below. (And yes, I’m back from a short break.)