Structuring Cross-Collateral/Cross-Default Real Estate Loans

Cross-collateralization is common in real estate finance transactions where the borrower owns multiple properties that it mortgages as collateral for a single loan. Affiliated borrowers may also agree to cross-default and cross-collateralize separate loans, consolidating separate loans into one transaction for the benefit of the lender.

Provisions regarding partial prepayment, defeasance, and releases of collateral can be intensively negotiated in crossed loan structures and must be drafted with care. Counsel must tailor reserve provisions to address potential expenditures at multiple properties. Complex intangible and recording tax calculations may be required where properties are mortgaged in multiple states.

Cross-collateralization expands the potential liability of each affiliated borrower and each guarantor to encompass an entire loan portfolio. It can also wreak havoc after a borrower's default or bankruptcy when there are also senior and second lien or mezzanine loans. Counsel for first and second or mezzanine lienholders must carefully evaluate their respective positions and delineate their respective rights concerning each borrower and each property.

Listen as our authoritative panel of finance practitioners guides you through the structuring and documentation of cross-collateral/cross-default real estate financing transactions, negotiating intercreditor agreements, and best practices for protecting liens post-default or bankruptcy.