A guaranty on a non-recourse loan that makes the guarantor personally liable only if the borrower commits listed acts, such as fraud or a voluntary bankruptcy.
A carve-out guaranty is the document that keeps a non-recourse loan honest. The lender agrees to look only to the property, and the guarantor agrees to be liable if the borrower does certain things that damage the lender’s position.
The OCC’s handbook for examiners lists the usual acts: fraud or misrepresentation, voluntary bankruptcy, environmental issues, liens the lender did not consent to, waste of the collateral, prohibited transfers and the diversion of funds. The handbook calls them “bad acts”, and the trade calls the document a bad boy guaranty.
The carve-outs work in two ways, and the difference is large. Under most of them the guarantor owes only the loss the act caused. If $50,000 of rent was diverted from the property after a default, the exposure is that $50,000. The handbook adds that, commonly, certain carve-outs cause the loan to become full recourse. On a $5,000,000 loan, an act on that second list puts the whole balance on the guarantor. Which acts sit on which list is set by the loan documents, not by any rule.
Before signing, sort each carve-out into one list or the other, and check who controls the acts named. A guarantor who does not manage the property day to day can still be liable for what the manager does.
How it shows up in the data here
Not in any public file. Loan documents are private, and nothing here shows the carve-outs on any loan. This site can show which lenders are active for your property type and size through loan comps. The carve-out list itself comes from the lender's loan documents, so ask for the form of guaranty early.
Go further
- Loan comps: Lenders that made loans like yours, by size and place.
- Guarantor strength and recourse, explained: A guaranty is the lender's second way out. Whether you sign one, how much it covers and what the lender checks before accepting it shape a commercial loan as much as the rate does.
Related terms
- Non-recourse loan: A loan the lender can collect only from the property pledged for it, not from the guarantor personally, except for listed bad acts.
- Recourse: A lender's right to collect a loan from the borrower or guarantor personally, beyond the property or other collateral pledged for it.
- Guarantor: A person or company that promises to repay a loan if the borrower does not. On a loan to an LLC or corporation, the guarantor is usually an owner.
- Personal guaranty: A signed promise by an individual, usually an owner, to repay a business or real estate loan personally if the borrowing company does not.
- Phase I environmental site assessment: A study of a property's records, history and visible condition by an environmental professional to identify likely contamination, done without sampling soil or water.
- CMBS conduit loan: A commercial property loan made to be pooled with other loans and sold to investors as commercial mortgage-backed securities, not kept by the lender that made it.
- Loan covenant: A promise in a loan agreement that the borrower will do certain things, or will not, for as long as the loan is outstanding, such as keeping a minimum debt service coverage ratio.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.