In one sentence
A mortgage secured by a tenant's leasehold interest rather than a fee ownership of real property.
The longer version
When the borrower owns a lease rather than the land, the lender's collateral is the leasehold. Leasehold mortgages require the underlying lease to permit financing and to give the lender notice and cure rights if the tenant defaults.
The lender's whole position depends on the lease surviving, so ground lessor consents and estoppels are central diligence items.
Common questions
- What is a leasehold mortgage?
- A mortgage secured by a tenant's interest under a ground lease rather than by ownership of the land, used to finance buildings on ground-leased sites.
- What does a lender need in the ground lease?
- Notice and cure rights, a right to a new lease if the ground lease terminates, no amendment without consent, the right to transfer on foreclosure, and a remaining term well beyond the loan's maturity.
- Why is a leasehold mortgage riskier than a fee mortgage?
- Because the collateral shrinks as the lease term runs down, and the ground lease can be terminated if its obligations are not met.
Keep reading