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interest.4 This requirement was imposed, in part, to secure
payment of the investor notes.
In accordance with the aforementioned security agreements,
the partnerships negotiated, pledged, and assigned all of the
investor notes as collateral for loans to the partnerships from
financial institutions. In turn, the partnerships acquired a
number of real properties with the loan proceeds. The notes
issued to the lenders by the partnerships were nonrecourse to the
general partners, but through various additional agreements, the
general partners were rendered liable with respect to the
partnership indebtedness. These notes were not, by their terms,
recourse to the limited partners.5
4As an example, on Oct. 12, 1984, William M. and Dianne B.
Stephens, as investors, signed a Security Agreement, in which
they:
[acknowledged] that the investor note and this
agreement, which stands as collateral therefore [sic],
will be assigned by the partnership as collateral for a
loan to a lender, and [the Stephens] hereby expressly
waives every defense, counterclaim or set-off which
[the Stephens] or any of [the other investors] may now
have or hereinafter may have to any action by such
lender or the lender's assignee.
This Security Agreement designates "Dakotah Hills Offices Limited
Partnership" as the "Secured Party".
5For purposes of this opinion, the term, "recourse
indebtedness" means that the debtor's assets may be reached by
creditors if the debt is not paid. Conversely, "nonrecourse
indebtedness" means that a creditor's remedies are limited to a
particular collateral for the debt. Raphan v. United States, 759
F.2d 879 (Fed. Cir. 1985).
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