Which of the following typically has the right to foreclose on the equity position and take control of the property?

• A. Mezzanine Debt
• B. Senior Debt
• C. Common Equity
• D. Preferred Equity

Answer: (A)

In a real estate capital stack, the ability to foreclose depends on what the instrument is secured against. Senior debt is secured by the property itself, so a default typically leads to foreclosure on the property. Mezzanine debt sits above the senior loan and is usually secured by an interest in the borrower’s equity (often a pledge of the ownership interests in the project’s entity). Because the claim is on the equity rather than the land, a default can trigger remedies that give the mezzanine lender the right to take control of the equity, effectively stepping in and steering or taking over the project. That is why this instrument is the one most associated with foreclosing on the equity position and taking control of the property.

Common equity and preferred equity are equity ownership layers and don’t provide the lender-style foreclosure rights on the property in the same way; they’re exposed to losses in a liquidation rather than having enforceable remedies to seize control through foreclosure.