Bad Boy Agreement

Bad boy agreement: What it is and why it matters in real estate

In the world of real estate, a “bad boy agreement” is a specific type of provision that is sometimes included in loan documents. Essentially, this agreement serves as a form of personal guarantee from the borrower to the lender. If the borrower breaches certain terms of the loan agreement, the bad boy agreement kicks in and allows the lender to go after the borrower`s personal assets in addition to the property that was used as collateral for the loan.

So why is this called a “bad boy agreement”? It`s because it`s typically used in situations where the borrower is considered a higher risk. This might be because they have a history of defaulting on loans, or because they`re operating in a high-risk industry (like construction). Essentially, the bad boy agreement is a way for the lender to protect themselves in case the borrower engages in any “bad boy” behavior that puts the loan at risk.

It`s important to note that the bad boy agreement is not always included in loan documents. It`s more common in certain types of loans (like mezzanine financing), and not every lender will require it. However, for borrowers who are seen as higher risk, it`s not uncommon for a bad boy agreement to be included as a condition of the loan.

From a borrower`s perspective, a bad boy agreement can be a risky proposition. If they breach the terms of the loan agreement and the bad boy provision kicks in, the lender can go after their personal assets – which could include things like their home or savings account. For this reason, it`s important for borrowers to fully understand the implications of a bad boy agreement before they sign on the dotted line.

At the same time, though, it`s important to see why a lender might want a bad boy agreement in place. From their perspective, it`s a way to mitigate the risk involved in lending to someone who may have a history of defaulting on loans or who is operating in a high-risk industry. By having a bad boy agreement in place, they can feel more secure in their lending practices.

Overall, a bad boy agreement is an important provision to understand if you`re involved in real estate lending or borrowing. Whether you`re a borrower or a lender, it`s important to be aware of the risks and benefits involved in this type of agreement. As always, it`s smart to consult with a legal or financial professional if you have any questions about the specifics of a bad boy provision or any other real estate issue.