Non-Recourse/Mezz Financing

NON-RECOURSE LOANS:

A non recourse loan is where the borrower agrees that they will not pay any of the unpaid balance of the loan nor any interest, attorneys’ fees or expenses if the borrower defaults on his or her loan.

What is nonrecourse financing?

A non recourse loan means that in the event of default, meaning if the borrower defaults on his or her obligation to repay the unpaid balance of the loan as well as any accrued interest and attorneys’ fees, then the lender cannot pursue the borrower personally to collect the debt.

So, what is a non recourse loan? Nonrecourse loans are when an asset, for example property, is used as collateral in exchange for a loan. The lender has no claim to any of the borrowers personal assets in case of default, but can only claim repossession of the collateralized asset i.e. the mortgaged property in this case.

Some non recourse commercial real estate loans, including multifamily loans, commercial mortgages, construction loans, and other forms of loan funding, are fully non recourse meaning that if there’s a missed payment or default on the payment agreement then all that is owed in terms of principal and interest will be repaid by liquidating the included collateral (the property). Other types of non recourse commercial real estate loans are partially recourse, meaning they contain provisions allowing lenders to make claims against borrowers outside of the collateral, if say for example a payment is missed.

In addition to collateralized property, there is also a type of nonrecourse loan where borrowers can receive money without having their credit checked or credit history established. In these cases the borrower’s only responsibility is to repay the loan amount with interest and fees as agreed upon in a promissory note.

Where non-recourse loans are used ?

Non recourse loans are one of the most common types of loans used in commercial real estate investments. An example of a non recourse loan is a mortgage for a house that has been taken as collateral from the borrower. The lender can have no claim to any of the borrower’s personal assets, but only take possession of the mortgaged property. A non-recourse loan allow lenders to take possession of a property if a borrower misses a payment or defaults on the agreement.

Non-recourse loans can also be helpful for the following scenarios/individuals:
CRE investors recourse
Real estate investor goals
Commercial real estate investors (such as a commercial real estate investor looking for real estate loans)
Other forms of commercial real estate loan financing
Non recourse financing in commercial real estate
When you use a non-recourse commercial property loan, the lender cannot take any of your personal assets. But they can take possession of the property you used as collateral if you miss a payment or default on your agreement.
Commercial real estate loans tend to be non-recourse, meaning the lender can only take possession of the commercial property and they cannot pursue any other assets. This type of loan has been popular for years with investors who purchase commercial property from a seller that demands a large down payment from the buyer.
Non recourse financing is used across many types of personal finance situations, including mortgages and car loans , but it’s especially important in terms of commercial real estate investment.

Mezzanine Financing Real Estate:

Mezzanine loans applied to commercial, industrial, and multifamily real estate are quite different to the standard commercial mortgaging common in this business arena. They are generally secured via a subordinate lien on the property or/and by assuming an interest in the owning entity (i.e. a partnership, trust, corporation, LLC, Delaware Corporation, estate – even a foreign national holding). Mezzanine financing for real estate can sometimes bring special advantages to the borrower by increasing asset returns alongside reducing out-of-pocket expenses.

How does mezzanine financing work?

A mezzanine financing in commercial real estate is when the occupier acquires funds in addition to their traditional lending in order to reduce his or her cost of capital. The occupier makes this decision because the mezzanine company’s anticipated return is higher than the interest rate that would be offered by a traditional lender.

How to structure mezzanine financing?

Mezzanine financing is a type of debt financing that is junior to the primary financing for a company. It is typically used to finance the acquisition of an ownership interest in a company or to provide additional working capital. Mezzanine financing can be in the form of a loan or an equity investment.

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