Carve-Outs (Bad Boy Guarantees)
Exceptions to non-recourse loan provisions that make the borrower personally liable for specific acts, such as fraud, misrepresentation, environmental contamination, misappropriation of funds, or voluntary bankruptcy. Carve-outs are standard in non-recourse lending and are typically signed by the loan guarantor or sponsor.
Related Terms
Non-Recourse
A loan structure where the lender's remedies in case of default are limited to the collateral property, and the borrower has no personal liability for any deficiency. Non-recourse loans are standard for CMBS, life company, and agency lending. They typically include "bad boy" carve-outs that make the loan recourse for fraud, misrepresentation, or environmental issues.
Recourse
A loan where the borrower is personally liable for repayment beyond the value of the collateral property. Recourse loans are common for construction loans, bank loans, and smaller transactions. Full recourse means the borrower guarantees the entire loan; partial recourse or "burn-down" provisions may reduce the guarantee over time as loan risk decreases.
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