The choice of governing law in real estate loan documents is a meaningful decision for a lender and can have significant ramifications in the future if the lender needs to enforce its remedies under the loan documents. Settled expectations about the law are an important consideration in making this choice, and recently enacted legislation in the state of Nevada, for example, upsets established precedent regarding the enforcement of a payment guaranty made in connection with a real estate loan. Similar legislation currently pending in the Georgia state legislature would, if enacted, also upend seemingly settled law regarding the enforcement of a payment guaranty.
Unlike Nevada and Georgia, the enforcement of a payment guaranty and other loan documents is well-settled under New York law. As a result of this predictive reliability, many national lenders choose New York law to govern their loan documents in real estate financing transactions, even if the loan is secured by a lien on real property located in another state. In those cases lenders “bifurcate” the governing law, whereby New York law governs all of the loan documents except for certain provisions in the mortgage which relate to real property and must therefore be governed by the law of the state where the real property is located.
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