Carve-out Guarantees In Commercial Mortgages
The carve-out guarantee gives a commercial lender the authority to require payment for a commercial real estate loan beyond the actual value of the property if foreclosure happens. Depending on the wording of the carve-out guarantee, the lender has the ability to seek damages or the entire loan amount if there are any violations of the note or commercial mortgage loan agreement.
Also called a “bad boy” carve-out, a carve-out guarantee often applies when the borrower or guarantor of the loan engages in serious violations—like misrepresentations of the property, fraud, theft, or voluntary destruction of real estate—that impact the value of the property or loan. This guarantee therefore gives the lender immediate financial recourse against such acts.
The carve-out guarantee also allows a lender to require payment for a real estate loan if the borrower files for voluntary bankruptcy or conspires with another party to have involuntary bankruptcy filed. The lender can also seek loan repayment or damages if the borrower transfers any part of the commercial real estate that affects its value.