A Loan with financed property guarantee is a type of non-recourse loan where a third party guarantees, empréstimo com garantia de imóvel financiado agrees to be responsible for, the debt of the borrower in the event of default. This allows lenders to more confidently qualify borrowers that may lack a substantial down payment or have a lower credit score. This type of guarantee typically comes from government agencies such as FNMA or the Department of Agriculture and is known as an agency backed loan.

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Unless the loan is fully non-recourse, when commercial real estate collateral declines in value and fails to generate enough cash flow to repay the debt, the lender will need to foreclose on the property and sell it. This often involves the guarantors pledging their personal assets to pay the balance of the debt. The tertiary source of repayment is the guarantors’ personal funds and if a full recourse guaranty is demanded, it incentivizes borrowers and guarantors to do whatever they can to avoid liability.

A carve-out guaranty, the second most common guaranty Geraci drafts for lenders, limits liability to bad acts or loss events. Examples of these include a bankruptcy filing that is not dismissed within a set time period, the unauthorized transfer or encumbrance of collateral or shares in the borrower/guarantor and any attempt to challenge the lender’s enforcement or disclaim liability. Another option is a declining guarantee, where the guaranty starts at 100% but falls over time based on hurdles that are met.