Why use a mezzanine loan? Why not just use a garden-variety second mortgage? The answer is that a lender can foreclose on a mezzanine loan in just 5 weeks, as opposed to 18 months.
You will never find a mezzanine loan in a first mortgage position.
Since mezzanine loans can be foreclosed in just 5 weeks, no owner of a $50 million office tower is going to put himself in a position where his building could be repossessed while he is on a three-week camping trip with his family. "Hey boss, while you were away, Linda forgot to make the mezzanine loan payment. Last Wednesday the mezzanine lender executed on the building, and you were completely wiped out." Yikes!
By the way, a lender forecloses on a mortgage and executes on personal property collateral (cars, equipment, coin collections, etc.). Therefore there will always be a big first mortgage in front of a mezzanine loan. In the capital stack, the pecking order of priorities would be the first mortgage, followed by the mezzanine loan, followed by owner’s equity in the property.
What type of loan do you need?
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