Making Sense of Real Estate-Secured Loan Documents
By Michael Kot
Loan documents prepared for a commercial real estate-secured loan provide that the guaranty and environmental indemnity agreement are not “loan documents” secured by the deed of trust. The lender is clarifying that the guaranty and environmental indemnity agreement are separate and distinct obligations from the requirement that the borrower repay the note, and not to be treated as direct obligations on the debt secured by the deed of trust. Despite the language in Washington’s Deed of Trust Act, there is a concern by lenders that if these obligations are deemed secured by the deed of trust, a non-judicial foreclosure would extinguish lender’s ability to pursue its remedies under such agreements after foreclosure. Guaranties and environmental indemnities are typically intended to survive a non-judicial foreclosure and provide lender remedies even after the obligations under the note are deemed satisfied by non-judicial foreclosure.