U.S. District Court Decision Points Out Potential Risks In Non-Recourse Loans

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.