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BOMA International Supports Nonrecourse Mortgage Loan Act in Michigan

18.05.12

WASHINGTON, DC, Apr 18, 2012 (MARKETWIRE via COMTEX) -- The Building Owners and Managers Association (BOMA) International applauds the Michigan Legislature for passing the Nonrecourse Mortgage Loan Act, which prevents lenders from seeking damages against a borrower or guarantor due to the borrower's inability to remain solvent.

Over the past decade, lenders have made more than $1 trillion in commercial mortgage backed security (CMBS) loans to the owners of commercial real estate nationwide. These loans were underwritten, marketed, sold and documented on the explicit basis that they were nonrecourse, meaning the borrowers had no personal liability for the debt. Instead, the CMBS lender's sole remedy was to take back the property in the event the borrower became insolvent, and the lender was prohibited from obtaining a monetary judgment for any deficiency. This nonrecourse feature made them attractive to borrowers.

Source: MarketWatch (press release)

Letters: Michigan's commercial mortgage law makes sense for all of state

18.05.12

Much has been written recently criticizing a new law as being the result of a special relationship or as designed to rescue a single real estate firm from default on a commercial mortgage backed securities (CMBS) loan. Such characterizations are simply wrong. The new law is seen as "net positive" in a recent, accurate analysis by Moody's Weekly Credit Report (April 2).

For the first time nationwide and only in Michigan, a local court turned the CMBS finance and investor community on its ear by transforming a loan intended as a nonrecourse loan into a full recourse loan. The judge did that even though the borrower and the lender each testified that the loan was always intended to be nonrecourse with very limited exceptions, and not the one that this court found. Of course, the lender's attorney successfully used technical legal arguments to keep evidence of the parties' true intentions out.

No solution was found to that mess at the Michigan Court of Appeals, which also ignored the actual intent of the parties and wrote that if its decision appeared "incongruent with the nature of nonrecourse debt" and could result "in economic disaster for the business community in Michigan," this was a matter of public policy best addressed by the Legislature.

Source: Detroit Free Press