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Category Archives: Guaranty Issues

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The Only Thing Worse Than a Claim in Bankruptcy is Claim Subordination

Posted in Collection, Guaranty Issues, Remedies, Tough Times for Lenders, Workout Issues

Claim subordination is the opposite of alchemy.  In most bankruptcy cases, creditors might look for ways to improve their treatment.  Claim subordination in the bankruptcy code provides a mechanism to force a creditor to receive worse treatment (relative to other non-subordinated claims which is, admittedly, not that great of treatment). In bankruptcy, there are a… Continue Reading

No Good Deed Goes Unpunished When Accepting Payment from a Non-Borrower on Behalf of a Borrower

Posted in Guaranty Issues, Lender Liability, Tough Times for Lenders

I have found this to be true over and over again.  Maybe it’s just my line of work. Part of my regular practice is being called in by the transactional lawyers (paper pushers) as they paper up a new loan or re-fi.  My job in those situations is to give my thoughts on what will… Continue Reading

OCC’s Commercial Real Estate Lending Handbook: Misses the List on Legal Issues

Posted in Articles, Good Times for Lenders, Guaranty Issues, Market Trends, Remedies, Technology Notes, Training

Over the last few weeks, I’ve commented on the new version of the OCC’s Commercial Real Estate Lending Handbook (I give it a gentlemen’s C); and I listed a few legal topics that deserve some guidance from the OCC. “Guidance” could even merely be a list of important topics (ending with a warning that the… Continue Reading

Grading the Examiners: OCC’s Commercial Real Estate Lending Handbook gets a “C”

Posted in Good Times for Lenders, Guaranty Issues, Insurance & Environmental Risks, Remedies, Training, Workout Issues

Last month, the Office of the Comptroller of the Currency published the Commercial Real Estate Lending handbook (August 2013).  The 128 page handbook gives guidance to bank examiners and bankers on risks inherent in commercial real estate (“CRE”) lending.  It replaces a 95 page version published in 1995 (and revised in 1998). For this new school year… Continue Reading

Even More Bad Boy Liability Events: My List of Liability for Lender’s Losses or Damages

Posted in Good Times for Lenders, Guaranty Issues, Remedies

In addition to the events that create “full recourse” liability (for the entire loan), bad boy liability also includes losses or damages incurred by the Lender based upon another list of “bad” events or triggers.  I’m sure that Jim Wallenstein will cover this at his presentation during the University of Texas Mortgage Lending Institute. Like… Continue Reading

The List of “Bad Boy” Recourse Liability Events Keeps Growing: My “Roll Up” Version

Posted in Good Times for Lenders, Guaranty Issues, Remedies

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… Continue Reading

Construction Lending: Trend toward Guaranty “burn off” brings new list of hot conditions

Posted in Good Times for Lenders, Guaranty Issues

Credit enhancement of commercial construction lending has a new, important twist to the traditional (full) payment and performance guaranty: the burn-off events go beyond valuation and debt service thresholds to also include many of the check list items utilized by permanent lenders.  The burn off has a new price.   Finally, construction loans are bubbling… Continue Reading

As “Bad-Boy” Recourse Liability Spreads to Construction Lenders . . . Is the End Near for Non-Recourse Liability??

Posted in Good Times for Lenders, Guaranty Issues, Market Trends

Once upon a time and in a very simple time,  construction lenders required full payment and performance guarantees, and only permanent lenders offered non-recourse financing (with “bad-boy” liability).  Now, even some construction lenders include a variation of non-recourse liability (with “bad-boy” events) in their structure.  And, the list of “triggers” or events that form the… Continue Reading

Minority Owner Exiting an Under Performing Deal? Don’t Need Lender Approval? Right . . . Wrong (or “oops”)

Posted in Guaranty Issues, Tough Times for Lenders, Training

People don’t “connect” their ownership (even a minority ownership) with their liability under bad-boy or non-recourse carveout agreements (whether in the form of an indemnity, or as a guaranty).   So, minority owners often transfer ownership without getting a release from bad boy liability .  It could be a costly mistake. With deals under water… Continue Reading

Bad-Boy Liability: Courts Find Liability for Violating Solvency or Net Profit Retention Covenants

Posted in Guaranty Issues, Tough Times for Lenders

We’re in that part of the cycle where many of us are focusing on guaranty agreements, which run the full spectrum from full payment and performance guaranties to “bad boy” indemnification agreements (my recent comment). One issue being litigated is the bad boy or recourse event tied to a breach of these types of covenants… Continue Reading

Collection Plate: Litigation Against Guarantors or Indemnitors Points to Lessons Learned – Tips on Underwriting & Loan Document Terms

Posted in Guaranty Issues, Remedies, Tough Times for Lenders

(More on the Collection Plate collection, which focuses on the recovery side of our work – the bottom line, nitty-gritty, work of getting "back" the money.) Our economic eddy is at the stage where law suits against guarantors or indemnitors, on full payment and performance agreements or on "bad-boy" agreements, are reaching final judgment –… Continue Reading

CMBS Hotel Delinquency at 14%+: Tips to Help You to Both Checkout and Leave (part two)

Posted in Guaranty Issues, Remedies, Tough Times for Lenders, Workout Issues

Standard & Poor’s summary of the CMBS delinquency rate for February is now out.  S&P reports a delinquency rate for lodging at over 14%. Actually, the rate in February decreased from 14.36% in January to 14.06%. But still over 14%.  Nothing magically in the "14" for me, except this: that’s a LARGE number. So, this… Continue Reading

Tips On Handling Defaulted Hotel Loans: You Can Checkout But Not Leave (part one)

Posted in Guaranty Issues, Remedies, Tough Times for Lenders, Training, Workout Issues

Thankfully, the economy might no longer be trending downward. However, we’re still in a rough patch. One rough area is the lodging industry. As always, the “best” hotels (by location, flag, price point, etc.) are doing better than their competition. But stories like this – “61 Bay Area Hotels in Default” (4thQ 2010) – point to the need to… Continue Reading

Need a Decision Tree and Short List of Key Topics for Your Next Workout? Try these. (Blogging after ACMA)

Posted in Guaranty Issues, Insurance & Environmental Risks, Lender Liability, Remedies, Tax Issues, Tough Times for Lenders, Training, Workout Issues

  The second day of seminars, at the annual meeting of the American College of Mortgage Attorneys, had two key take-aways for me.  The first nugget focuses on the Dodd-Frank financial law. The second nugget (below) is much more practical.  Inspired by comments made by Jim Allen during a panel presentation (he’s with the Miller Canfield… Continue Reading

Diversion of Rent and Lender Liability: Bad Acts Pointing To Borrower and Lender Liability

Posted in FAQs, Guaranty Issues, Tough Times for Lenders

This is a series of blog entries in which we provide some quick answers to lenders’ frequently asked questions (FAQ). Strangely enough, I associate diversion of rent with lender liability  –  because both are common liability claims based upon "bad acts" of either a borrower or a lender. FAQ #20 – What if I think… Continue Reading

What workout topics interest you? Any inside scoop?

Posted in Guaranty Issues, Lender Liability, Remedies, Tough Times for Lenders, Training, Workout Issues

Once a month, our regular group of authors discuss topics that we view as being of interest (the "hot" topics) in the commercial loan workout arena.  We then hash out a list of what we’ll write on for the next month. Identifying "hot" workout topics can be a dangerous thing for lawyers.   Yes, we – are active in… Continue Reading

Recourse Carve-outs

Posted in Guaranty Issues, Tough Times for Lenders

Real estate financing in recent times has generally involved non-recourse loans. While this is virtually a given in a conduit loan situation – the regular portfolio lenders often found it necessary to offer non-recourse loans to compete. A corollary to this basic market term, is the recourse carve-out – circumstances which trigger an exception to… Continue Reading