TCL - Bad Boy Guaranties: Know What to Do When the Lender Comes for You - September 2013 - Business Law
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Bad Boy Guaranties: Know What to Do When the Lender Comes for You
by Michael J. Guyerson, David M. Little
Business Law articles are sponsored by the CBA Business Law Section to
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Michael J. Guyerson is a member and David
M. Little is an associate with the Denver law
firm of Onsager, Staelin & Guyerson, LLC.
The firm emphasizes commercial bankruptcy,
insolvency, commercial litigation, and
business matters. They can be reached at
(303) 512-1123 or through the firm’s website
at www.osglaw.com.
Courts nationally have upheld "bad boy" guaranty terms imposing fullrecourse liability on nonrecourse loans for events that turn out not to be
so "bad" after all. Colorado and Tenth Circuit precedent is likely to follow
this trend, but defenses to recourse liability exist, and a legislative
solution is being tested.
Lenders and private equity investors have found that to be competitive in
today’s global economy, it sometimes is best to limit a borrower’s exposure to
the value of the collateral—a classic nonrecourse loan. Unconditional and full
guaranties of sophisticated real estate and commercial development loans are
rare these days, although they certainly can be found. Guarantors are
understandably reluctant to sign full and unconditional guaranties; private
equity developers, REIT funds, or foreign developers may be restricted from
doing so in their organizational or operational agreements. Many commercial
borrowers prudently wish to limit their own exposure to the value of the
collateral—or perhaps a fixed dollar amount—with no recourse liability for any
deficiency. A "bad boy" clause or guaranty agreement is one mechanism that
attempts to meet these sometimes conflicting concerns, but frequently fails to
do so, leaving unexpected full liability for the borrower and the guarantor.
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TCL - Bad Boy Guaranties: Know What to Do When the Lender Comes for You - September 2013 - Business Law
Definition
Nonrecourse loans are common, but most come with a twist. In its basic form,
a bad boy guaranty is part of a commercial nonrecourse loan transaction where
the liability of the borrower and the third-party guarantor are transformed from
nonrecourse liability for any deficiencies typically to full recourse liability in the
event of certain triggering actions or "bad boy" events.
Historically, the triggering events that made the borrower and the guarantors
fully liable for all losses were serious events of defalcation, such as theft or
conversion of collateral, unauthorized sale of assets, waste, or fraud. However,
far less egregious behavior now frequently triggers the recourse liability,
including the filing of a voluntary or involuntary bankruptcy proceeding by, for
example, a borrower or guarantor or both, zoning law changes, judgments,
adverse awards, or falling below a minimum debt-to-equity ratio.1 In Colorado,
using property in a way that may be legal under state law but not federal law—
for example, a marijuana growing operation—also might trigger such full
recourse liability. Sometimes, the guaranty will be limited in amount, perhaps to
actual damages caused, but that often is not the case.
Impact on Commercial Lending
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The Bank of America, N.A. v. Lightstone Holdings, LLC 2 opinion provides an
example of a bankruptcy filing triggering recourse liability. In 2009, Extended
Stay Hotels, then one of the country’s largest owners of hotels, filed a
bankruptcy petition. In 2007, an investor group had acquired Extended Stay
Hotels for a reported $8 billion in a highly leveraged purchase. The borrowers’
mortgage and mezzanine loans were nonrecourse, except that certain bad boy
acts—among them a voluntary or involuntary bankruptcy filing by or against the
borrowers—would trigger recourse liability to the borrowers. The guarantors
personally guaranteed the borrowers’ recourse liability up to $100 million, with
the so-called bad boy act prohibitions in place. One could have scarcely
forecasted in 2007 when the acquisition was made and the loan agreement and
guaranties signed—in what was a robust business and personal travel climate
with a growing economy—that just two years later, bankruptcy would be filed.
In 2008, the overall economic crisis caused Extended Stay Hotels to encounter
financial difficulties. The borrowers tried to return their properties to the senior
lenders, but junior lenders prevented this attempt and ultimately Extended Stay
Hotels filed a Chapter 11 petition as part of a plan with the senior lenders. The
bankruptcy filing triggered the guarantors’ recourse liability on mezzanine loans,
and these lenders sued the guarantors in the New York Supreme Court of New
York County in June 2009. In July 2009, the guarantors removed the state
court action to the bankruptcy court where the Extended Stay bankruptcy case
was pending, but the bankruptcy court remanded the case to state court. The
junior lenders then moved for summary judgment in the state court litigation. 3
Guarantors’ Defenses in Lightstone Holdings
In challenging the "springing nature" of the bad boy guaranties, the guarantors
in Lightstone Holdings advanced several arguments against enforcement. Chiefly
among their defenses, the guarantors argued that the springing nature of the
guaranty provisions that resulted in recourse liability against the borrowers and
the guarantors in the event of a voluntary bankruptcy filing were void as a
matter of public policy. 4
The New York Supreme Court rejected this argument, holding that: (1) the
guaranty agreements contained an enforceable waiver of defenses clause such
that the guarantors effectively waived asserting the guaranty was void as
against public policy; and (2) there was no public policy reason to justify the
borrowers or the guarantors walking away from their contractual obligations. 5
The Court further observed that the waiver of defense clause also prevented any
argument that the guaranties were invalid as an unenforceable penalty not
commensurate with damages resulting from the bad act at issue.6 In
explanation, the court pointed out that the borrower and guarantor were
sophisticated distressed real estate investors, the guaranty itself was a common
feature in commercial mortgage loans, and such guaranties almost uniformly
contain language that makes them unconditional and that waives the right to
assert defenses. 7 Another court similarly upheld such features as valid financing
arrangements. 8
Unintended Consequences
Another illustrative case is Blue Hills Office Park LLC v. J.P. Morgan Chase Bank,
in which a borrower settled a zoning dispute with a neighboring property but
pocketed the $2 million cash settlement instead of depositing the settlement
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into the borrower’s account. 9 The borrower eventually stopped making
payments on its mortgage loan and the lender foreclosed. The lender was not
happy to find out that the principals pocketed the $2 million rather than making
it available to the borrower to pay the mortgage loan and invoked bad boy
provisions in the loan agreement.
The court found that, under the language of the loan documents, the $2 million
settlement for the zoning dispute was part of the collateral for the mortgage
loan. 10 Thus, the borrower and principals transferred a portion of the collateral
in violation of the loan documents. As drafted, the bad boy guaranty made the
principals liable for the full amount of the debt in the case of an unauthorized
transfer of any portion of the collateral. Therefore, the principals were liable for
the $17.5 million judgment entered in favor of the lender.11
Colorado View
Although there is no controlling Colorado precedent on bad boy provisions in
relation to public policy constraints, the most relevant opinion is Pompa v.
American Family Mutual Insurance Co., where the Tenth Circuit observed that
under Colorado law an exclusionary provision that renders an insurance policy’s
coverage illusory may violate public policy. 12 This observation may appear to
question whether a contractual provision operating inequitably or contrary to
parties’ intentions may be void as against public policy, but premising such an
argument on the Pompa opinion is undercut by, among other reasons, the court
specifying neither the public policy at issue nor how the defense would further
the public’s interest in such policy. 13
Nevertheless, the Pompa opinion is relevant because it recognizes that industryspecific public policy concerns may outweigh the interest in enforcing a
guaranty. 14 To the extent that bad boy guaranties in certain contexts may
unintentionally divorce stakeholder decisions from consequences, such as in
mezzanine lending, 15 these clauses may tend to produce results contrary to
public policy.
However, industry-specific public policy concerns also may weigh in favor of
enforcing burdensome bad boy guaranties and it is possible that Colorado and
the Tenth Circuit generally may be inclined to join other courts that have
roundly upheld the sanctity of the commercial contract and the right to
negotiate terms and provisions.16 For example, in Colorado Interstate Corp. v.
CIT Group/Equipment Financing, Inc., the Tenth Circuit upheld "hell or high
water and waiver of defense clauses" in a software lease, citing as support the
fact that enforcement aids financing in the equipment leasing industry.17 These
clauses typically require the lessee to absolutely and unconditionally remit the
installment payments to the assignee once a lessee has formally accepted
property, notwithstanding non-conformity or malfunctioning of the software or
any other claims or defenses that the lessee may have against the lessor or the
software company. Consequently, far from arguing a bad boy guaranty is
unenforceable as a matter of policy, a successful defense likely depends on a
lender’s actual conduct.18
Other Affirmative Defenses
Besides the illegal penalty and public policy defenses already described, several
more traditional defenses may be involved. These are discussed below.
Unconscionability
What standard for unconscionability may apply depends on the source of law
from which the defense arises, but the basic defense falls under the state law
controlling a contract.19 The standard applied by the Tenth Circuit under
Colorado common law requires both substantive and procedural
unconscionability20 expressed through various factors, such as commercial
reasonableness. 21 No individual factor is dispositive, but generally, case law
exhibits a positive correlation between provisions being enforced against a party
and that party’s sophistication or opportunity to knowingly assent to an
agreement. 22
Thus, except perhaps in the context of consumer financing, a party to
commercial or real estate lending likely will be treated as sufficiently
sophisticated to satisfy commercial reasonableness and enforce bad boy
guaranties.23 However, similar to industry-specific public policy concerns,
Colorado state court precedent recognizes varying degrees for scrutinizing
unconscionability in different contexts, 24 and the Tenth Circuit’s opinion in Lutz
Farm v. Asgrow Seed Co. may question the relevance of a party’s sophistication
in certain circumstances. 25
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Additionally, the Colorado Court of Appeals has observed that a lender’s conduct
may render enforcement of a provision unconscionable. 26 These qualifications
may strengthen an unconscionability theory, and significantly may highlight the
need to examine public policy considerations and the covenant of good faith and
fair dealing.
Fraud in the Inducement/Promissory Estoppel
Many borrowers insist that their loan officer orally told them something that is
not part of the written loan agreements or guaranty. Statements such as "this is
a mere formality and we would never enforce it" are frequently argued as being
relied on. Detrimental reliance on these representations, which led to executing
a bad boy guaranty, would seem like a natural and viable defense. However,
pursuant to CRS § 38-10-124 as applicable to credit and loan agreements and
as discussed below, reliance on oral statements and promises, no matter how
many people witnessed the statements or how persuasive the evidence, will not
prevail if the statements are not in writing and properly signed or
acknowledged.
Credit Agreements and Statute of Frauds
Oral modifications of credit agreements in excess of $25,000, such as guaranty
instruments, are not permitted under CRS § 38-10-124 and a series of cases
dealing with its meaning. 27 Moreover, traditional defenses or counterclaims such
as promissory estoppel, fraud in the inducement, and any claims centering on
oral promises or modifications are simply not allowed. The only loophole—
possibly a large one—is the notion that e-mail communications constitute a
writing under the current case law in Colorado and, thus, properly
acknowledged e-mail communications sometimes may be pieced together to
foster a defense.28
Breach of the Covenant of Good Faith and Fair Dealing
Another frequently raised affirmative defense in bad boy guaranty litigation is
the affirmative defense and counterclaim of breach of the covenant of good faith
and fair dealing, a damage claim with potentially broad offset remedies.
Colorado courts have embraced this defense, but the nature of the proof of the
breach can be difficult.29 This defense generally focuses on lender actions (or
inactions), not usually oral promises or statements. Oral promises or statements
will not pass the statute of frauds objections of counsel and, without an e-mail
trail, the claim may quickly disappear. 30 Importantly, however, the U.S. District
Court for the District of Colorado recently held that personal liability springing
from a bad boy guaranty entitles the guarantor to assert a debtor’s claims
against a creditor for breach of the covenant of good faith and fair dealing to
setoff liability from the guaranty. 31
Libor and Fraudulent Interest Rate Terms
Recently, as the Libor interest rate fixing scandal has spread across Europe and
now the United States, loan and credit agreement with rates tied to Libor have
come under attack on the ground that the interest rate being charged is illegal,
fraudulently arrived at, a false or deceptive business practice, or otherwise
renders the note and the guaranty unenforceable and subject to setoff claims
for damages.32
Not many new commercial loans may be tied to the old disputed Libor rate, but
renewals of old loans, modifications, and extension agreements all carry with it
the baggage of the old interest rate and calculations used to arrive at current
balances. Thus, merely changing the reference to the rate in trying to expunge
the old Libor reference is likely to be ineffective.
Drafting Concerns
Given the favorable reception that commercial loan agreements have received in
Colorado, the drafter of commercial loan documents has little to fear from being
as protective of the lenders’ interest as possible in structuring default terms,
remedies, and guaranties. In a traditional commercial loan setting, the
sophisticated business person is presumed to be capable of understanding the
implications of what he or she is signing and will not later be allowed to show
remorse and seek a way out of the agreement. 33
As for borrowers and their counsel, leverage in negotiations may be slim and
sometimes one must walk away from a loan rather than blindly sign and hope
no adverse consequences occur. This is especially true for bad boy guaranties
tied to the actions or inactions of third parties. If it is possible to negotiate a
maximum percentage or hard dollar limits on liability, that may be the best
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protection one can obtain. Practitioners should be careful about what they ask
clients to sign, because they will have a difficult time avoiding its enforcement.
Conclusion
The idea of a nonrecourse commercial loan is not a new concept, nor is the idea
of a full-recourse springing guaranty. What has changed is the ever-lowering
threshold for what constitutes a bad act sufficient to activate the recourse
nature of the obligation. Defenses to such claims are limited and hard to prove.
A legislative solution may be the best option available to prevent springing
recourse liability from blindsiding borrowers against their intentions when
agreeing to a bad boy guaranty.34
Notes
1. The recent case of Wells Fargo Bank, N.A. v. Cherryland Mall Ltd. P’ship, 812
N.W.2d 799 (Mich.App. 2011), is an excellent example of a lender calling a loan
"fully recourse," based on the borrower’s insolvency and failure to pay debts as
they came due. The court upheld the guaranty, notwithstanding the lender,
borrower, and guarantor all agreeing that the collateral for the loan was worth
less than the amount owed to the lender. The borrower and guarantor sought
leave to appeal, but while their application was pending, the Michigan
Legislature passed the Nonrecourse Mortgage Loan Act (NMLA), which
effectively negates Cherryland Mall. See infra note 34 (discussing prohibitions
under the legislation). The Michigan Supreme Court remanded the case to the
court of appeals to reconsider its prior decision in light of the prohibition under
the NMLA, which the court of appeals now has held barred the lender’s recourse
claims. See Wells Fargo Bank, N.A. v. Cherryland Mall Ltd. P’ship, No. 304682,
2013 WL 1442053 (Mich.App. April 9, 2013) (per curiam).
2. Bank of America, N.A. v. Lightstone Holdings, LLC, 938 N.Y.S.2d 225, 2011
WL 4357491 (N.Y.Sup.Ct. N.Y. County July 14, 2011) (table opinion).
3. Kaufman and Steinberg, "New Decision Offers Lessons on Bad Boy
Guarantees," 246 New York L.J. (March 12, 2012), available at
www.kslaw.com/imageserver/KSPublic/library/publication/2012articles/312NYLJSteinbergKaufman.pdf.
4. See id.
5. See Lightstone Holdings, 2011 WL 4357491 at *5.
6. See id.
7. Regarding the public policy argument, it is generally agreed that there is
nothing wrong with a guarantor simply guaranteeing a borrower’s indebtedness
at the outset. The "springing nature" of the guaranty should therefore not
change the result unless the "bad act" triggering event itself violates public
policy. Kaufman and Steinberg, supra note 3 (explaining this premise in context
of whether bad boy guaranties may be unenforceable penalties). In this context,
the prohibitions contained within the NMLA, infra note 34, may be an indication
of coming developments against enforcement of bad boy guaranties.
8. See First Nat’l Bank v. Brookhaven Realty Assocs., 637 N.Y.S.2d 418
(N.Y.App.Div. 1996), appeal dismissed, 88 N.Y.2d 963 (N.Y. 1996) (unpublished
table opinion).
9. See Blue Hills Office Park LLC v. J.P. Morgan Chase Bank, 477 F.Supp.2d
366, 370 (D.Mass. 2007).
10. Id. at 379.
11. Id. at 380-83.
12. Pompa v. American Family Mutual Ins. Co., 520 F.3d 1139, 1145 (10th Cir.
2008), citing O’Connor v. Proprietors Ins. Co., 696 P.2d 282, 285 (Colo. 1985)
(volume of Federal Aviation Administration regulations may cause coverage
exclusion of accidents occurring while noncompliant with regulations to violate
public policy). Generally, the defense voids agreements that tend to conflict
with ever-changing societal morals, goals, or principles derived from common
law, constitutions, statutes, or otherwise.
13. Compare ING Real Estate Fin. (USA) LLC v. Park Ave. Hotel Acquisition LLC,
2010 slip op. 50276(U), 907 N.Y.S.2d 437, 2010 WL 653972 at *5 (N.Y.Sup.Ct.
N.Y. County 2010) (table opinion) (interpreting bad boy guaranty to not trigger
large recourse liability by disproportionately trivial tax payment delinquency),
with In re Vill. Homes of Colo., Inc., 405 B.R. 479, 483 (Bankr.D.Colo. 2009)
(Campbell, J.) (explaining that the public policy at issue must be clearly
revealed in laws of jurisdiction and the relief of voiding an agreement as against
such policy exists for the protection of the public at large).
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14. Pompa, 520 F.3d at 1145 (discussing public policy as specific to insurance
industry).
15. For example, guarantor recourse liability triggered by a borrower-entity
filing bankruptcy could allow a mezzanine lender to take control of the
borrower-entity through foreclosure and file bankruptcy regardless of a
guarantor’s contrary intentions. Christenfield and Goodstein, "Bad Boy
Guaranties: Does the Punishment Fit the Crime?" 246 New York L.J. (Oct. 6,
2011), available at
www.cliffordchance.com/content/dam/cliffordchance/PDF/Bad_Boy_Guaranties__Does_the_Punishment_Fit_the_Crime.pdf.
16. See, e.g., U.S. Bank., Nat’l Ass’n v. Kobernick, 454 F.App’x 307, 313 (5th
Cir. 2011) (distinguishing bad boy guaranty triggered by bankruptcy from
otherwise void bankruptcy waiver); UBS Commercial Mortg. Trust v. Garrison
Special Opportunities Fund L.P., 2011 N.Y. slip op. 51774(U), 938 N.Y.S.2d 230,
2011 WL 4552404 at *6 (N.Y.Sup.Ct. N.Y. County March 8, 2011) (table
opinion) (conflicts of interest and stymieing commerce are not cognizable public
policies in commercial law).
17. Colorado Interstate Corp. v. CIT Group/Equipment Financing, Inc., 993 F.2d
743, 748-49 (10th Cir. 1991) (enforcing clauses under Texas law). See also
RSACO, LLC v. Res. Support Assocs., Inc., 208 F.App’x 632, 639-40, 640 n.6
(10th Cir. 2006) (ruling that "hell or high water" clause was unenforceable
under Colorado law as outweighed by public policy, then noting that Colorado
law did not govern the lease in Colorado Interstate).
18. See generally RSACO, 208 F.App’x at 639 (reasoning that Colorado courts
would not enforce a hell or high water clause violative of public policy to the
extent that a lessor sought protection from engaging in wrongful acts of
preventing a lessee from fulfilling its contractual obligations).
19. Compare Been v. O.K. Indus., Inc., 495 F.3d 1217 (10th Cir. 2007) (state
law standard applied to contract enforceability), with In re Woody, 494 F.3d
939, 948 (10th Cir. 2007) (dictionary definition applied under 42 USC § 292f(g))
and Bernal v. Burnett, 793 F.Supp.2d 1280, 1286-87 (D.Colo. 2011) (purposes
of Federal Arbitration Act, 9 USC §§ 1-16, 201-08, and 301-07, restrict state
law standard).
20. See Mullan v. Quickie Aircraft Corp., 797 F.2d 845, 850 (10th Cir. 1986)
(unconscionability requires "‘overreaching [by] one of the parties . . . result[ing]
from inequality of bargaining power or . . . an absence of meaningful choice . . .
together with contract terms which are unreasonably favorable to that party,’"
quoting Davis v. M.L.G. Corp., 712 P.2d 985, 991 (Colo. 1986)); Bailey v.
Lincoln Gen. Ins. Co., 255 P.3d 1039, 1054-55, 1055 n.9 (Colo. 2011) (Davis
opinion requires both procedural and substantive unconscionability).
21. See Mullan, 797 F.2d at 850 (listing factors and applying to Colorado
Uniform Commercial Code § 4-1-103); Vernon v. Qwest Communications Int’l,
Inc., No. 09-cv-01840-RBJ-CBS, 2013 WL 752155 at *8 (D.Colo. Feb. 27,
2013) (same in application to Colorado common law standard).
22. See, e.g., Mullan, 797 F.2d at 851-52 (purchaser should have reasonably
anticipated disclaimer provision in standardized contract based on industry
familiarity and opportunity to modify); Lutz Farm v. Asgrow Seed Co., 948 F.2d
638, 643-44, 646 (10th Cir. 1991) (limitation of remedies provision only stated
in records provided at defective seed shipment’s arrival held unconscionable).
23. See Mullan, 797 F.2d at 851-52. See also Bailey, 255 P.3d at 1056, 1056
n.11 (commercially reasonable provisions in an agreement cannot be held
unconscionable).
24. See Bailey, 255 P.3d at 1049 (courts have "heightened responsibility" in
reviewing insurance policies); In re Marriage of Graff, 902 P.2d 402, 405-06
(Colo.App. 1994) (trial court order in a divorce proceeding unreasonably
restricted operation of husband’s business).
25. Lutz Farm, 948 F.2d at 639-40, 643-44, 646 (voiding provision without
discussing buyer’s industry experience and history with seller of defective seed
shipment).
26. Planned Pethood Plus, Inc. v. KeyCorp, Inc., 228 P.3d 262, 266 (Colo.App.
2010).
27. In FDIC v. Fisher, 292 P.3d 934, 937-38 (Colo. 2013) (en banc) (finding
credit agreement not ambiguous and thus declining to rule whether CRS § 3810-124(2) permits extrinsic evidence to interpret contract).
28. See Gleneagle Civic Assoc. v. Hardin, 205 P.3d 462, 467 (Colo.App. 2008)
(e-mail can satisfy a statute of frauds); PayoutOne v. Coral Mortgage Bankers,
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602 F.Supp.2d 1219, 1225-26 (D.Colo. 2009) (e-mail may satisfy CRS § 38-10124(2)).
29. McDonald, "The Complicated World of Lender Liability," 40 The Colorado
Lawyer 13, 14 (April 2011) (theory applies where lender’s actions are
"dishonest, intentionally deceptive, or . . . egregious and outrageous").
30. See generally id. (absent express contract provisions, lender not obligated
to assist restructuring extant loan); Pool v. Wells Fargo Bank, N.A., No. 11-cv01066-KLM, 2012 WL 3264294 at *2-3 (D.Colo. Aug. 10, 2012) (unpublished)
(CRS § 38-10-124(2) bars extrinsic evidence where contract ambiguity not at
issue).
31. Wells Fargo Bank, N.A. v. Khan, 12-cv-00681-WYD-CBS, 2012 WL 6643834
at *1-3 (D.Colo. Dec. 20, 2012) (slip copy) (guarantor may assert principal’s
independent claim if (1) principal assigns claim or consents to surety’s use; (2)
principal and surety are joined in creditor’s suit; or (3) principal is insolvent).
32. For example, in 2012 a class action of potentially 10,000 mortgagors
brought an action for damages allegedly caused by major banks conspiring to
profit from adjustable rate loans by manipulating increases in Libor. See
Touryalai, "Banks Rigged Libor To Inflate Adjustable-Rate Mortgages: Lawsuit,"
Forbes (Oct. 15, 2012), available at www.forbes.com/sites/halah
touryalai/2012/10/15/banks-rigged-libor-to-inflate-adjustable-rate-mort
gages-lawsuit, citing Bingham, "US Woman Takes On Banks Over Libor," The
Financial Times (Oct. 14, 2012), available at www.ft.com (search "Alabama
Libor," then follow "US woman takes on banks over Libor" hyperlink). See also
LaCroix, "Big News: Consolidated Libor-Scandal Antitrust and RICO Claims
Dismissed," The D & O Diary (April 1, 2013), available at
www.dandodiary.com/2013/04/articles/libor-scandal-1/big-news-consolidatedliborscandal-antitrust-and-rico-claims-dismissed (investor class action alleging
damages from major banks conspiring to depress Libor dismissed).
33. See Mullan, 797 F.2d at 851-52; Garrison, 2011 WL 4552404 at *6. But see
Park Ave. Hotel Acquisition, 2010 WL 653972 at *5; RSACO, 208 F.App’x at
639-40.
34. As a potential model for defining the parameters of bad acts that may
permissibly trigger recourse liability, the Michigan NMLA prohibits solvency
requirements as triggers for springing full recourse liability. See Mich. Comp.
Law §§ 445.1591-445.1595 (2013) (eff. March 29, 2012). See also Leg. 67 at
Enacting § 1, 96 Leg., 2012 Sess. (Mich. 2012):
The legislature recognizes that the use of a post-closing solvency covenant as a
nonrecourse carveout . . . is inconsistent with this act and the nature of a
nonrecourse loan; is an unfair and deceptive business practice and against
public policy; and should not be enforced. (emphasis added).
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