Bad-boy carve-outs on a non-recourse loan

Wikipedia's article on nonrecourse debt describes a loan the lender is supposed to collect from the property, plus a list of exceptions. In commercial real estate those exceptions are written as a carve-out guaranty, often nicknamed a bad-boy guaranty. The nickname is not cute in practice. It is a contract. Typical triggers people negotiate include fraud, a voluntary bankruptcy, a transfer the loan forbids, and environmental harm. Some of those acts make the guarantor liable only for the lender's loss. Some spring the guaranty to the full loan. The difference is the difference between a repair bill and the entire balance. Only the signed guaranty says which one you have.

Have counsel review the guaranty before you treat the cover email's word non-recourse as the deal. This page is informational only. It is not a reading of your documents. Arizona's anti-deficiency statute, A.R.S. 33-814, is about deficiency judgments after a trustee's sale. It is context for people who have heard that Arizona limits deficiencies. It is not a promise that a commercial carve-out guaranty is unenforceable, and it is not legal advice. Counsel has to say whether that statute even applies to the property and the procedure in front of you.

CMBS, bank, and life-company versions

Conduit loans are where sponsors most often expect a carve-out guaranty instead of a full repayment guaranty. Wikipedia's commercial mortgage-backed security article is the pooling and special-servicing background. The carve-out list on a conduit loan is often long, and it is often written so that a voluntary bankruptcy springs full recourse. A life-company loan may also be non-recourse with a shorter list, or it may not be. A bank loan on a smaller or owner-occupied commercial building more often asks for a full guaranty of payment. The OCC's Commercial Real Estate Lending handbook describes bank risk. It does not require every bank to use carve-outs, and it does not forbid them.

None of those patterns is a promise. A term sheet that says non-recourse and a guaranty that springs to the full amount on a long list of ordinary acts is a full-recourse loan wearing a different hat. Read both. The Arizona discussion of recourse as a concept is recourse versus non-recourse. Conduit placement is Arizona CMBS. Where the words show up in an offer is how to read a term sheet. The paper around the guaranty is the documents checklist. Definitions sit in the glossary.

What this office will not say

We will not say your loan is non-recourse. We will not say a carve-out is harmless because you do not plan to do anything wrong. A transfer to an affiliate, a new mezzanine loan, or an unpaid tax can be on the list even when nobody thinks of it as a bad act. Ask which triggers are loss-only and which spring the full loan. Ask what happens to the guarantor after a permitted transfer. Then let counsel mark the draft.

Capital Market Funds is not a Fannie Mae DUS lender. The office is 7373 E Doubletree Ranch Rd #255, Scottsdale, AZ 85258. The phone is (480) 495-8072. Capital Market Funds, LLC - CBK-2007014 - Commercial Mortgage Banker and NMLS 1445066. Arranging a loan does not interpret the guaranty.