This article is a first step in evaluating and discussing some of the hazards, legal risks and uncertainties inherent in mezzanine financings and the way in which the market fails to adequately take these factors into account. In Part II, I describe the legal background and structure of mezzanine loans. Part III focuses on the risks and realities of mezzanine loans. In particular, I describe some of the difficulties in perfecting a security interest in, and foreclosing upon, mezzanine loan collateral. In Part IV, I argue that the recent subprime mortgage crisis offers a cautionary tale for many of the hazards that may be looming in the near future for the mezzanine loan market, that mezzanine lenders must better understand and evaluate these hazards, and that the legal system needs to produce clearer rules on these non-traditional financings.

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