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Present-day real estate financing is significantly more complex than traditional financing. Sobered by borrower bankruptcies and compelled by rating agency requirements in the modern day era of mortgage securitizations, lenders are now looking to “mezzanine loans” to bridge the gap between senior debt and borrower equity. A mezzanine loan will often cover 50% to 90% of the equity required to acquire a property. In order to secure the repayment of a mezzanine loan, a lender customarily requires a pledge of the partnership or membership interests of the property owning entity.
In traditional mortgage transactions the borrower is required to obtain title insurance insuring the lender's mortgage lien on the real property. Ordinary title insurance is not available to the mezzanine lender because the collateral is not considered real property but rather a general intangible or investment property. The focus of this article is to explore the evolution of mezzanine financing and the various title insurance products available to the mezzanine lender in the current marketplace. Specifically, we look at the following forms of title insurance coverage: 1) the New York Insurance Rate and Service (TIRSA) Fairway Endorsement; 2) the TIRSA Non-Imputation Endorsement; 3) the TIRSA Mezzanine Financing Endorsement; and 4) the UCC Article 9 Insurance Policy.
The Evolution of Mezzanine Financing
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