Banking Brief: Financial Services Insights

When a commercial real estate loan goes into default, a lender's rights in the property are only part of the equation. The continued enforceability of tenant leases can significantly affect rental income, property value, and the lender's ability to maximize recovery. Uncertainty surrounding lease priority and tenant rights can create unexpected challenges during foreclosure or after a change in ownership. A subordination, non-disturbance, and attornment agreement (SNDA) helps address these issues by establishing the relationship between tenants and lenders before a default occurs. For Indiana commercial real estate lenders, understanding and properly negotiating SNDAs is an important part of protecting collateral and preserving the value of income-producing properties.

In commercial lending, the difference between a guarantor and a co-borrower can directly affect whether a lender can enforce a loan. One common and costly mistake is mislabeling a party as a co-borrower when they are really acting as a guarantor.

Although this may seem like a small drafting issue, courts look beyond labels to the substance of the transaction. Getting it wrong can weaken a lender’s ability to collect in the event of default and introduce avoidable legal challenges. Understanding these distinctions and structuring loans accordingly is critical to protecting your position.

For lenders making loans secured by commercial real property, a current survey is always preferred. In some transactions, however, a lender may be asked to rely on an existing survey in order to save time and expense. Whether that request can be accommodated depends on the specific risks associated with accepting a dated survey.