As the COVID-19 pandemic continues to wreak havoc on the real estate industry, and as the initial lender reaction of accommodation to borrowers has mostly continued, there has been a shift from loan modifications to defaulted loan forbearance arrangements, together with a very public increase in mezzanine-lender enforcement actions, as evidenced by the public advertisements of notices of sale.

Due to the fact that mezzanine loans and mezzanine lenders do not have the benefit of a mortgage lien and are otherwise “structurally subordinate” to mortgage loans, the mezzanine lender has a different risk profile (as compared to mortgage lenders) to not only third-party creditor claims at the property level, but also to “affiliated” creditor claims at the property level. Such affiliated creditor claims often arise from affiliate development, construction and/or property management agreements, as well as other potential insider claims relating to indemnification and contribution obligations arising under the property owner’s organizational documents.

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