A bank will typically record a mortgage or deed of trust instrument on real property when a loan is taken by the property owner to purchase or refinance real estate. To secure the bank’s interest in the property, the lender records a mortgage instrument in the records of the county where the property is located.
In the event of a borrower default on the mortgage, the lender may elect to foreclose on the property in an attempt to recover some or all of its losses from the unpaid loan balance. The act of foreclosing on the property will cause most other property interests (e.g. easements, assignments of rent, etc.) recorded after the date of the loan to be voidable at the bank’s discretion. This means that the bank may choose to keep the property interests in place or it may elect to void the junior interests in the property.
When a lease buyout company purchases your cell site lease or an easement under the cell site on your property, they often pay many years of monthly rent up front. If there is a mortgage on the property, the lease buyout company is concerned that the bank (lender) could foreclose in the event that the property owner (borrower) fails to pay the mortgage. In such instance, a bank would likely elect to void the lease assignment or easement interest purchased by the lease buyout company so that the bank could then begin to receive the cell site rent. Such action by the lender would leave the lease buyout company holding the proverbial empty bag, no longer entitled to receive the monthly rent for which it bargained in the lease buyout transaction.
The Non-Disturbance Agreement (“NDA”) (sometimes referred to as an “SNDA” or Subordination, Non-Disturbance, and Attornment Agreement) is used to preserve the lease buyout company’s interest in the property in the event a lender forecloses on a property. Typically an NDA is signed by the lender, property owner and lease buyout company. It is a contract that provides the bank will agree not to disturb (remove or extinguish) the lease buyout company’s interest provided that the lease buyout company is not in default at the time of the foreclosure. In most lease buyout transactions where there is debt on the property, the lease buyout company will require your lender to sign an NDA. If you are unable to provide one, the buyout company typically reserves the right to reduce the purchase price. Thus, it is important to inquire about an NDA with your lender before you sign a letter of intent, not after.