Real estate finance is a type of secured lending. Some of the reasons for taking security in a real estate finance transaction reflect the main advantages of taking security in any commercial finance transaction (see Practice Note: Difference between security and quasi-security—Why take security and/or quasi-security?).

Security in real estate finance transactions is particularly important because the borrower is usually a special purpose vehicle (SPV) (also known as a special purpose company or SPC) which is set up specifically for the proposed transaction (ie to purchase or purchase and develop a property). This means that the borrower will have no history of operations and its only assets will be those related to the property and, if applicable, its development. See Practice Note: Introduction to real estate finance—the lending structure—Borrower entities in real estate finance transactions.

As a result of the SPV structure, the credit risk associated with the borrower is usually of less importance to lenders in real estate finance transactions than in a straightforward corporate loan transaction. A comprehensive security package is one way