Practical Law Glossary Item 3-507-0086 (Approx. 3 pages)
Bad Boy Guaranty
Also known as a guaranty of recourse obligations or nonrecourse carveout guaranty. A typical loan document in a real estate loan. It is often signed and delivered by the borrower or the borrower's guarantor, or both.
A bad boy guaranty can be drafted to either:
Cause the borrower or guarantor, or both, to be personally liable for damages to the lender.
Convert an otherwise nonrecourse loan into a full-recourse loan as against the borrower or guarantor, or both.
Actions that can trigger a bad boy guaranty include:
Misapplication of funds.
Unauthorized transfers of the mortgaged real property or other collateral.
A bankruptcy filing.
The terms of the bad boy guaranty can be negotiated by the parties. For example, the parties may agree to limit the parties' liability to the amount of damages, rather than the amount of the loan debt.