Bad-boy carve-outs are narrowly drafted exceptions to non-recourse that trigger personal sponsor liability for specific bad acts: fraud, intentional misrepresentation, misappropriation of funds, voluntary bankruptcy filings, environmental contamination, and unauthorized transfers. The loan remains non-recourse for ordinary credit losses; only the listed bad acts create recourse .
What is the standard list of carve-outs?
Most agency, CMBS, and life-company perm loans carry a substantially similar list: fraud or willful misrepresentation; gross negligence or willful misconduct; misappropriation of rents, security deposits, insurance proceeds, or condemnation awards; physical waste; voluntary bankruptcy or any collusive involuntary bankruptcy; transfer of the property or equity in violation of the loan documents; and environmental indemnification.
What is a 'springing' versus 'full' recourse trigger?
Springing recourse means the listed bad act triggers personal liability for the actual loss caused by that act. Full recourse means the listed bad act triggers full recourse for the entire outstanding loan balance. Bankruptcy and unauthorized transfer are commonly drafted as full recourse; misappropriation is typically loss-only.
How should sponsors negotiate carve-outs?
Tighten the bankruptcy trigger so it requires actual collusion, not mere filing. Convert as many full-recourse triggers to loss-only as possible. Add a knowledge qualifier on environmental (i.e. only triggered by knowing acts). Most institutional lenders accept reasonable tightening; carve-outs are one of the most negotiated provisions in the loan documents.
Sources
- Multifamily Market Commentary · Fannie Mae Economic & Strategic Research · 2026-Q1
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1