Ask Before You Sign That Lender-Developer Side Agreement

Law360, New York (September 5, 2013, 11:52 AM EDT) -- When unforeseen or unusual circumstances arise during the term of a construction loan, a lender and a developer may agree to modify the terms of the loan in order to allow construction to continue. Normally, the parties modify the existing loan agreements. However, in certain circumstances, the parties may enter into a new side agreement.

In Citizens Business Bank v. Alexis M. Grevorgian, decided Aug. 1, 2013, the California Court of Appeal for the Second District reaffirmed the importance of obtaining the consent of subordinated sellers before entering into such an agreement.

In Citizens Business Bank, a trust purchased three residential...

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