In certain cases, loan documents include a one-time right of transfer or other provision allowing the purchaser of encumbered commercial real estate to assume the subject loan from a borrower that desires to sell the property. One-time right of transfer or permitted assumption provisions always include certain conditions that must be satisfied in order for the lender to consider, and possibly approve, the assumption request. For example, conditions may include (among other things) requirements that: (i) the proposed borrower be experienced in the ownership and management of properties similar to the subject property, (ii) certain loan to value requirements for the subject property are satisfied and (iii) the lender's standard underwriting requirements be satisfied. There are certain issues related to the loan assumption process that sellers and purchasers should be aware of before negotiating a purchase and sale contract that contemplates a loan assumption.
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).
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