Often times when negotiating financing terms for commercial real estate, prospective buyers assume that simply classifying the debt on a building as “Non-Recourse” debt will remove the personal liability of the owners. As many potential investors have come to realize, banks and other lending institutions are becoming increasingly savvy in the wording of their lending documents with the use of “Carve Out” clauses. Carve out clauses attempt to protect that lending institutions rights, as well as the value of the property. In most cases, the carve out clause ultimately forces the borrower to either (1) continue paying the mortgage or (2) forfeit the property to the bank. In either case the Carve Out clauses protect the bank from costly litigation.
Below is a list of popular carve out clauses that recently appeared in our Real Estate Monitor e-newsletter (click any of the clauses for a link to the full article with further detail):
- Initial term recourse
- Top-of-the-loan recourse
- Property taxes and mechanics liens
- Fraud or misrepresentation
- Milking the property
If you are interested in receiving our Real Estate Monitor on a regular basis, please click here to send us an email with “Real Estate Monitor” in the subject line and we’d be glad to add you to our list. You can also contact our Real Estate and Construction Group at 440-449-6800.