This article will discuss three key topics in intercreditor agreements governing the relationship between mortgage and mezzanine lenders, and the evolving standards that are often taken into consideration when negotiating provisions addressing these topics. In particular, these three topics relate to (i) the evolving concept of mortgage lenders requiring either an actual supplemental guaranty or a joinder agreement with respect to the mezzanine lender’s obligations under an intercreditor agreement, (ii) whether a mezzanine lender should be permitted to exercise limited voting/control rights on behalf of a mezzanine borrower in order to block certain material actions (such as a bankruptcy filing), and (iii) whether a mezzanine lender should be obligated to allow a mortgage borrower to deliver a deed-in-lieu of foreclosure, including waiving its right to full-recourse liability against a guarantor in connection with the delivery of a deed-in-lieu.

1. Requiring Supplemental Guaranties or Joinder Agreements

In some situations, a mezzanine lender will be a special-purpose entity with segregated liability, whose only asset is the mezzanine loan. When this is the case, the mezzanine lender will have limited assets (i.e., its interest in the mezzanine loan) with which to satisfy judgments against it (assuming for the sake of this article that there is no “veil piercing” or similar claim that would create liability for parties other than the mezzanine lender entity), and a mortgage lender may have concerns that it is not adequately protected against breaches of the terms of the applicable intercreditor agreement.