Borrowers and Guarantors Urged to Negotiate Clear, Defensible "Bad-Boy Provisions" That Limit Liability
Earlier this year, in a decision handed down in favor of a commercial mortgage lender, the United States District Court for Massachusetts offered a clear warning to careless borrowers. The case, Blue Hills Office Park LLC v J.P. Morgan Chase Bank (477 F.Supp 2d 366 (D.Mass. 2007), demonstrates:
the importance of carefully negotiating the terms of non-recourse loans, and
the value of limiting borrower and guarantor liability and lender recourse to appropriate levels and specific situations.
This decision is particularly important, since there are relatively few cases that deal with the enforceability of "non-recourse carveouts" (also known as "bad-boy carveouts") and the lender's ability to take advantage of overly broad terms to accelerate foreclosure and recover the full amount of a loan.
An Overview of the Case
In 1999, Blue Hills Office Park LLC ("Blue Hills") negotiated and closed a $33 million non-recourse mortgage loan with Credit Suisse First Boston Mortgage Capital LLC ("Credit Suisse"). The loan was guaranteed by William Langelier and Gerald Fineberg, and...
