• “Bad Boy” Guaranties and Bankruptcy: New York Court Enforces Non-Recourse Carve-Out Guaranty
  • October 15, 2013 | Authors: John P. Doherty; Robert J. Sullivan
  • Law Firm: Alston & Bird LLP - New York Office
  • A recent New York court decision has cleared the way for lenders to seek recovery against non-recourse carve-out, or “bad boy,” guarantors during a pending mortgage foreclosure action if a borrower files for bankruptcy. In so doing, the court answered a question that, surprisingly, was thus far apparently unanswered in a reported decision in New York: whether New York’s “one action rule” under RPAPL § 1301 bars a lender from obtaining a money judgment against a “bad boy” guarantor for the debt if a mortgage borrower files for bankruptcy while a foreclosure action is underway. This is a welcomed decision for lenders foreclosing on loans guarantied by non-recourse carve-out guarantors.