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Keeping the Lights On: Payment of Operating Expenses After an Event of Default

When an event of default occurs under a mortgage loan, the lender’s first thought might be, “How will we get repaid?”, while the borrower’s first thought might be, “How do we pay operating expenses, taxes and insurance if we don’t have access to property income?” 

While options like a workout, short sale, foreclosure or deed in lieu of foreclosure are eventual outcomes following an event of default, determining who will be responsible for the payment of operating expenses, taxes and insurance is a primary issue in the interim. Both the lender and the borrower have an interest in preserving the value of the property serving as collateral for the loan, and, thus, both have some incentive to use available income at the property to pay operating expenses (including leasing expenses), property taxes and insurance while working out next steps for disposition of the loan and the property.

Read more from attorneys Andrew Bensson, Kimberly Salmon, and Craig Todaro in this Boston Business Journal article.

Generally, a borrower is responsible for maintaining the property and paying the operating expenses, taxes and insurance, regardless of a default under the loan.

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corporate, real estate, office & industrial, article, real estate banking & finance, real estate joint ventures & equity investments, commercial real estate workouts, real estate transactions