(Save the date: RealShare L.A.comes to the Hyatt Regency Century Plaza in Los Angeles, CA on March 27, 2013)
LOS ANGELES-Hypothetical: Borrower secures a non-recourse loan to acquire a commercial office building and concurrently leases it to a cloud based internet start-up company. The loan is secured only by the real property but is subject to certain “bad boy” exceptions for borrower misconduct (including a stipulated “bad boy” act for the termination of the lease without lender consent). Borrower's principal enters into a full recourse “bad boy” guaranty. Two years into the loan, the tenant goes out of business, ceases paying rent and abandons the property. Borrower subsequently defaults on the loan, files for bankruptcy and assumes that its losses are limited to the lender foreclosing on the property. The lender, however, disagrees, forecloses on the property and sues the guarantor for the deficiency balance.
Is buyer or lender correct?
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