Glossary

Technical Default

Also known as: Non-Monetary Default, Covenant Default

A breach of a loan covenant that does not involve a missed payment — such as a lapse in required insurance, a failure to deliver financial reporting, a DSCR or occupancy covenant breach, or an unauthorized transfer — as distinguished from a monetary default resulting from missed debt service.

Even though no payment is missed, most CRE loan agreements treat an uncured technical default as a full event of default once the applicable cure period lapses, giving the lender the same acceleration and foreclosure rights it would have for a missed payment — though in practice technical defaults more commonly trigger a springing cash sweep or covenant waiver negotiation than an immediate foreclosure. A common misconception among borrowers is that being current on debt service means the loan is not in default; in reality, a persistent, uncured reporting or covenant breach is itself independently actionable. This makes technical defaults strategically significant for distressed-debt buyers pursuing a loan-to-own strategy: acquiring a loan against a borrower with an uncured technical default — even one who is current on payments — can provide leverage to press for a workout, a forced sale, or a foreclosure that a purely payment-current loan would not.