The Plight of the Unwary - Mezzanine Loan Foreclosures

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In the wake of the economic crisis and distress of the real estate markets, issues related to the foreclosure of mezzanine loans have become the subject of much discussion. A mezzanine loan put simply is a loan given to a business entity which is secured by the ownership interests in that business entity. In real estate transactions, the most frequent structure involves a pledge of the membership interests in a limited liability company. This limited liability structure is primarily the result of special purpose entity requirements imposed by commercial lenders to conform to securitized lending guidelines. Mezzanine loans provide an opportunity for an entity which owns commercial real estate to leverage its equity in instances in which the entity’s real estate lender does not allow subordinate mortgage financing.

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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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