Complex Title Structures Send Lenders "Back to Basics"

The typical non-recourse real estate loan is easy to describe. The borrower is the owner in fee simple of a piece of property. A lender agrees to lend money to the borrower, after satisfying itself that the value of the property is sufficiently greater than the loan the borrower seeks (to comply with the lender's required loan-to-value ratio) and performing other customary physical and documentary due diligence with respect to the property. The loan is secured by a mortgage on the property and other security documents, and the mortgage is recorded in the appropriate local land records. The borrower makes payments of interest and principal to the lender until the loan is paid in full, at which time the mortgage is released of record. While this description vastly oversimplifies most commercial real estate loans, in recent years the level of variation from this archetype has increased markedly, creating challenges for both lenders and their counsel.