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The “Waste” Carve-Out

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Recently, I dealt with an issue while acting as borrower’s counsel related to a waste carve-out in a non-recourse loan. Under the law of this particular state, “waste” was defined under state law to automatically include the failure to pay taxes and insurance. As you may know, “waste” is often a partial recourse carve-out under a non-recourse loan. A careful borrower’s lawyer will attempt to delete waste from a carve-out guaranty given the treatment of waste in certain recourse guaranty litigation (which is not always possible to accomplish given the market on this subject).