Once in a while, an individual who provided a Guaranty for non-recourse carveouts related to a CMBS conduit loan passes away. What happens?
CMBS loan documents provide for this event. The Loan Agreement says the Borrower is to give Lender notice to substitute a replacement Guarantor (“Replacement Guarantor”) within thirty (30) days after the occurrence of such death or incapacity, and furnish such documents to allow Lender to approve the proposed Replacement Guarantor.
We recently had a Guarantor pass away on a CMBS loan that we closed in 2015 and the daughter of the deceased Guarantor called us for help. We contacted the servicer on her behalf, and provided notice for a Replacement Guarantor, the Guarantor’s wife. The criteria for a Replacement Guarantor are generally as follows:
- No litigation/liens/felonies or other serious credit matters in the past or ongoing are against the proposed Guarantor.
- The proposed Guarantor must have control over the Borrower, such as a position of Managing Member if the Borrower is an LLC or an Officer if the Borrower is a corporation.
- The proposed Guarantor must have sufficient net worth, experience and liquidity to support the financial obligations of the non-recourse carveouts.
Our proposed Replacement Guarantor had no credit issues, was a Vice President of the Borrowing entity, had assisted in the management of the real estate and was the beneficiary of the assets of the deceased Guarantor, thereby meeting all the criteria required for approval.