In recent years, we have seen an increase in the number of mortgage lenders that require a pledge of the equity interests in the mortgage borrower in addition to the granting of the mortgage encumbering the real property. Often called an “accommodation” pledge, typically the structure of such collateral entails the sole member of the mortgage borrower executing a guaranty of the loan, which guaranty is secured by such pledge.

Accordingly, if the mortgage loan is in default and the lender is entitled to exercise remedies, the lender will have the option to either foreclose the mortgage (which, in New York, could take up to two years to complete) or foreclose on the pledge pursuant to a UCC sale (which would typically take only a few months or less to complete). Upon consummation of the UCC sale, the lender will own the membership interests in the mortgage borrower, which effectively means that the lender will control the property.

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