Negative Pledge Agreements: Are They Enforceable?

more+
less-

Many lenders are willing to provide a commercial line of credit without obtaining a deed of trust, but require the borrower to execute a negative pledge agreement. These negative pledges or negative covenants, which are usually recorded, generally provide that the borrower will not encumber or transfer specified real property during the life of the subject loan. The lender holds “a contractual guarantee that property in which the debtor has an equity will remain unencumbered and unconveyed, and thus available for levy and execution should the creditor reduce his debt to judgment,” according to Tahoe National Bank v. Phillips in 1971.

Although few courts have addressed the issue, it is fairly well settled that such an agreement does not create a security interest in the property against which the agreement was recorded. The question presented is whether a negative pledge agreement is unenforceable and, if so, whether a lender who places a demand into escrow as a condition of releasing the recorded instrument has any exposure to the borrower for slander of title.

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Published In: General Business Updates, Finance & Banking Updates, Professional Malpractice Updates, Commercial Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Miller Starr Regalia | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »