The real estate property market is currently under severe strain currently due to the forced shutdowns of all non-essential business in Florida due to the COVID-19 outbreak. As the crises looms, the Federal Reserve could eventually relax some regulations to allow forbearance on loans.
Currently, it is up to the lenders, property owners and tenants to work together and find the best outcome for all involved. Many of the obvious steps, such as amendments to leases and loan payment deferments could lead real estate owners to significant personal liability.
Generally, real estate loan documents limit the borrowers ability to amended leases (only on loans not for primary homes). In Florida for commercial real estate transactions generally, there is a limited guarantee named “bad boy” guarantee which are limited guaranty documents that have certain triggers that may convert them to unlimited guarantees. Agreements between the owner and tenant completed without the lender’s approval to defer, reduce or waive rent payment is a trigger and the most common since the COVID-19 pandemic began. An agreement as such can make the borrower liable for the entire loan amount. Another pitfall that may cause a trigger is if the borrower admits in writing their inability to make payments when they are due. Unless properly worded, a simple request to your lender for forbearance in payment as a result of the tenants inability to pay rent may result in the borrower under the bad boy guaranty to become liable for 100 percent of the entire loan.
Borrowers need to take caution and carefully review their loan and guaranty documents prior to discussions with the lender. An experienced real estate attorney is a borrowers best friend during these uncertain times. An attorney will help you ascertain your rights with the lender to avoid any negative triggers.
If you an questions or concerns regarding your property feel free to contact us at 305-227-4030 or legal@raygarcialaw.com.
