Nonrecourse Real Estate Loans: An Endangered Species?

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As many apprehensive borrowers once again enter the commercial real estate loan marketplace, one of the first questions they often ask is: “Can I get a nonrecourse loan?” This is especially true for borrowers who are coming out of the recession smarting from loan workouts, restructurings or, even worse, bankruptcy. Borrowers desire nonrecourse loans to avoid personal liability to the borrower or its principals as the lender looks only to the mortgage collateral for enforcement purposes. With cautious lenders and new government loan regulations in place, it seems that the nonrecourse loan has gone the way of the dodo bird — people vaguely recall what it looks like, but they just can’t find one anymore.

Lenders are understandably reluctant about making full nonrecourse loans, having suffered through staggering losses and difficult workouts of past-due loans. However, as the competition heats up for placing loans secured by quality commercial real estate, lenders are beginning to tout “nonrecourse loan” products. At first blush, what seems to walk and squawk like nonrecourse often isn’t upon closer inspection. Only a naïve borrower can nowadays expect that nonrecourse commercial mortgage loans really mean the borrower (or its key principals) are not personally liable for repayment of the debt should a default occur.

Originally published in Oregon Business - April 2014.

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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.

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