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During the last decade (at least until the turndown in 2008), obtaining multiple levels of debt on large commercial real estate assets grew increasingly popular for developers and operators. Frequently, such a structure consisted of a first mortgage loan and subordinate mezzanine debt. The document governing the relationship between a first mortgage lender and a mezzanine lender is commonly referred to as an “intercreditor agreement.” As the economy went south, the corresponding decrease in value of commercial real estate resulted in many mezzanine loans becoming virtually worthless to the respective lender. As the value of a property drops to or below the amount of the outstanding first mortgage loan, the mezzanine lender is left with a de facto unsecured debt to a company that, in all likelihood, has no other assets. In an effort to find some value in their investments, mezzanine lenders have been coming into conflict with better situated mortgage lenders that are looking to the same distressed property as security for their senior loans. Although the enforceability of intercreditor agreements in both bankruptcy and non-bankruptcy proceedings has generally been affirmed by the courts and state legislatures,1 there is no body of well developed case law governing conflicts between mezzanine and mortgage lenders, rather it is a developing area trying to find a reliable direction.

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