Liquidating loans definition audio

This article will discuss several different types of guarantees that may be required by lenders in order to minimize payment and performance risks associated with construction loans.Commercial mortgage loans secured by existing income producing properties are often made on a non-recourse basis to the borrower (and its principals), other than with respect to customary limited recourse carve-outs.

The guarantee may provide that the lender's losses are the lender's out-of-pocket costs and expenses necessary to complete the project (including interest charges, real estate taxes and other operating expenses) in excess of the undisbursed loan proceeds remaining under the budget—that is, cost overruns and other excess expenses necessary to complete the project.In as much as the guarantor will likely be an affiliate of the borrower, if the borrower fails to timely complete the project, the guarantor may be unable or unwilling to step up and perform under the completion guarantee (in addition to the lender's likely having lost faith in the ability of the borrower-related parties to complete the project).Furthermore, even if the lender desired the guarantor to complete the project under the terms of the guaranty, the lender may have difficulty obtaining specific performance as a result of the lender having the ability to instead sue for damages under the completion guarantee.Depending upon the underwriting for the particular project, a construction lender may require one or more of the guarantees discussed below.This article will not address the limited recourse carve out guarantees or environmental indemnities that are generally required for all construction loans since those guarantees/indemnitees are required for most commercial mortgage loans, and therefore, are not unique to construction loans.

Leave a Reply