March 12, 2012
Trend Developing: Courts Strictly Enforcing Recourse Carveouts Giving Rise to Personal Liability of Guarantors
Client Alert
Borrowers typically think of CMBS loans as being recourse only to the collateral for the loan, i.e. the property. They also believe that if they cooperate with the lender after a default they will be able to walk away without personal liability under the loan so long as they do not do certain “bad boy” acts like misappropriation or waste of the collateral. However, recent cases are holding that if the recourse carveouts are triggered, whether inadvertently, and even cured, that the guarantors will become fully liable for the entire balance of the loan.