Liquidating loans definition audio
This guarantee (or a separate guarantee) may also cover the obligation under the loan agreement that the borrower keep the loan "in balance." In other words, the guarantor may be required to deposit funds with the lender if the lender determines that the loan proceeds remaining to be advanced at any given time are insufficient to complete the project and pay for the operation and maintenance costs of the property and interest on the loan.The construction lender may pursue its rights and remedies under the completion guarantee upon the occurrence of various events, including, among others, (i) the borrower's failure to commence or complete construction within the time periods set forth in the loan agreement, (ii) construction ceasing for an extended period of time resulting in a default under the loan agreement or (iii) the occurrence of any other event of default under the loan agreement.
Commercial mortgage loans secured by existing income producing properties are often made on a non-recourse basis to the borrower (and its principals), other than with respect to customary limited recourse carve-outs.
The guarantor will be responsible for lien-free completion and all cost overruns and for all other costs that do not fall into the category of construction related expenses, such as interest charges under the loan, insurance premiums and real estate taxes.
In certain instances, the portion of the completion guarantee that covers soft costs such as interest charges, insurance premiums and real estate taxes may only be in place until completion of the project or stabilization of the completed project.
In as much as the guarantor will likely be an affiliate of the borrower, if the borrower fails to timely complete the project, the guarantor may be unable or unwilling to step up and perform under the completion guarantee (in addition to the lender's likely having lost faith in the ability of the borrower-related parties to complete the project).
Furthermore, even if the lender desired the guarantor to complete the project under the terms of the guaranty, the lender may have difficulty obtaining specific performance as a result of the lender having the ability to instead sue for damages under the completion guarantee.