Just because the lender agreed to a loan being non-recourse does
not mean that giving the mortgage lender the keys to the failed
real estate project is the end of the story. Individuals or
entities who signed an indemnity as to "bad boy"
carve-outs (or guaranty of recourse obligations) may find
themselves liable for repayment of what was always described as a
non-recourse loan. The loan documents may contain a nonrecourse
statement, but that statement is almost always subject to
exceptions.
Traditionally, only intentional misconduct on the part of the
borrower, such as waste (meaning allowing physical deterioration of
the mortgaged property), fraud, misapplication or diversion of
funds, material misrepresentation or intentional interference with
the lender's ability to foreclose on collateral, would
terminate the protection of a non-recourse loan enjoyed by the
borrower. The theory was that it would be unfair to the lender to
protect a borrower if that borrower
