Leasehold Financing and Mortgagee Protections
Probate and Property, July/August 2000, Volume 14, Number 4
By Eugene A. DiPrinzio
Eugene A. DiPrinzio is a member of Young Conaway Stargatt & Taylor, LLP in Wilmington, Delaware. He is a member of the Real Property Division's Sports, Entertainment, Gaming and Related Real Estate Issues (H-2), Mortgage Loan Structure and Origination (I-1) and Loan Practices and Lender Liability (I-2) Committees.
Leasehold mortgage financing, by its nature, is a complicated form of lending. It involves the competing interests of landlords, their fee mortgagees, tenants and their leasehold lenders. From a transactional perspective, the challenge is to strike a balance among these competing interests. Leasehold mortgage financing can take several different forms, such as recourse and nonrecourse types. The financing may require subordinated or unsubordinated lien positions on the possessory interests of the ground lease. Although leasehold mortgage financing could be the subject of an entire treatise, this article is concerned solely with the perspective of a leasehold mortgagee interested in financing a ground lease. The mortgagee protections suggested here are not intended to be exhaustive but are meant to demonstrate the basic issues that are usually at the top of each leasehold mortgage lender's priority list.