Bad-boy carve-outs are specific borrower behaviors that pierce non-recourse and trigger personal recourse , most commonly fraud, misappropriation of property cash flows, unauthorized transfer of the property or equity, voluntary bankruptcy filing, and failure to maintain SPE status.
Standard list (typical institutional CRE loan)
Fraud or material misrepresentation. Intentional physical waste of the property. Misapplication or misappropriation of rents, insurance proceeds, or condemnation awards. Voluntary subordinate financing or transfer in violation of loan docs. Failure to pay property taxes leading to lien priority loss. Voluntary bankruptcy filing.
What is negotiable?
Whether each carve-out triggers full-loan recourse or only loss-amount recourse. Whether 'collusion' standards apply to involuntary bankruptcy. Materiality thresholds. The exact wording of the SPE-failure carve-out (knowing vs. negligent failure). Whether the guaranty cap applies after a recourse trigger.
On larger deals, sponsors with leverage negotiate loss-amount-only recourse for most carve-outs and reserve full-loan recourse for the most egregious behaviors (fraud, misappropriation, unauthorized transfer).
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1