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homes, cars, bank and brokerage accounts) in order to make themselves whole. If the foreclosure amount does not fully pay back their outstanding loan amount plus interest, expenses, legal fees, and any additional default fees, the lender is free to pursue the borrower’s personal property (i.e. If a borrower engages in bad boy activities, the lender may attempt to foreclose on the property. What Happens When a Borrower Acts Like a “Bad Boy”? Taking out a subordinate loan without the express permission of the lender

Preparing fraudulent tax or income statements to make themselves appear more financially strong than they really are during the loan application processĬonspiring with property appraisers, inspectors, or others to falsify third-party reportsįraudulently changing a property’s profit and loss (P&L) statement to make the property’s income appear higher or the expenses lower than they really areĮmbezzling money from the investment property Some of the most common “bad boy” activities by investors include: Essentially, the recourse has been “carved out” of the agreement if the borrower conducts themselves badly and has thus been a “bad-boy.” Common “Bad Boy” Activities By Investors However, there is a catch to non-recourse loans called “bad boy” carve-outs. Most Fannie Mae, Freddie Mac, HUD, and CMBS loans are non-recourse.

Non-recourse loans allow a commercial real estate borrower to take out a loan without being personally liable if the loan goes into default. "Bad Boy" Carve-Outs Definition and Explanation