Peter Korda and Joshua Kurtz Published in The New York Law Journal
03/18/2008
The Special Real Estate Section of the March 17, 2008 issue of The New York Law Journal covering Trends In Real Estate and Title Insurance, includes the article "Mezzanine Loan Title Insurance" authored by Peter Korda and Joshua Kurtz. Their piece noted that prior to the general credit slow down, issuance of mezzanine loans (i.e. loans secured by ownership interests in a real property owner, not by mortgages) nearly tripled in the United States over the past three years. In response to this growing market trend, all major land title insurance companies now offer some form of UCC insurance and most mezzanine lenders now require this type of coverage as a standard closing checklist item. The article highlights the functionality of UCC Insurance in mezzanine financing transactions. More specifically: (a) the legal and business importance of lender's obtaining a UCC insurance policy for mezzanine financing transactions (i.e. additional protection, transferring risks, decreasing reliance on opinion letters), (b) the type of coverage provided by the policy, and (c) the standard underwriting requirements that must be satisfied prior to issuance of said policy. Although mezzanine lending is inherently more risky than mortgage lending (e.g., the risk of post-closing liens on the real property diminishing the value of the pledged ownership interests), obtaining appropriate mezzanine loan-related title insurance (a) offers the mezzanine lender enhanced confidence at the time of closing, at least as to its position vis-à-vis competing claims on the pledged ownership interest collateral; and (b) affords the mezzanine lender the right under certain circumstances to benefit from the real property owner’s title insurance coverage.
