Nonrecourse Loan Legislation Enacted
Legislation correcting problems with the interpretation of nonrecourse loan carveouts has been enacted. Senate Bill 992, now Public Act 67 of 2012, was introduced by Sen. Arlan Meekhof at the request of individual real estate interests and the Building Owners and Managers Association (BOMA). AAM vigorously advocated for the bill, which saw quick legislative approval and was signed by Governor Snyder on March 29th. Called the “Nonrecourse Mortgage Loan Act,” the legislation prohibits a post-closing solvency covenant from being used as a nonrecourse carveout or as a basis for any claim against a borrower, guarantor, or other surety on a nonrecourse loan, and, specifies that a noncompliant provision in loan documents would be invalid. Additionally, the Act specifies it does not prohibit a loan secured by a mortgage on real property located in Michigan from being fully recourse to the borrower or guarantor if the loan documents do not contain nonrecourse provisions. The new act applies to the enforcement and interpretation of all nonrecourse loan documents in existence now or entered into in the future.
The legislation was needed in response to two recent court cases in Michigan which essentially provided for personal liability within nonrecourse loans in the event of foreclosure. AAM, BOMA, and others initiated an amicus brief in one of the cases, Wells Fargo Bank, N.A. v. Cherryland Mall, to aid in the effort to reverse the court decision. I encourage all members who are interested in this issue to attend the next AAM Owners Breakfast Club on Wednesday, May 2 at 8:30 a.m. at the Association Offices. Attorney Jonathan Borenstein of Honigman will provide a further explanation of these cases and the impact of the legislation.
President’s Corporate Tax Plan Increases Carried Interest Tax Rate
In February, the Obama Administration released a framework for a plan to cut the corporate tax rate from 35 percent to 28 percent. Unfortunately for the real estate industry, one of the proposals to pay for this cut is to tax carried interest at ordinary income rates, rather than at the current capital gains rate. Increasing the carried interest tax rate has been proposed multiple times over the past few years, including by the Obama Administration last year in other legislation. The original rationale used by advocates for the change was that it was a means to tax Wall Street hedge funds, but now the Administration reasoning is that the current tax treatment of carried interest at the capital gains rate is a tax loophole. While no action on this issue is expected prior to the election, it is certainly something that will be discussed as a part of the post-election debate on comprehensive tax reform.