So I'm working with a local non-profit to help them liquidate at least one, but probably 2 of 3 properties currently under a commercial umbrella mortgage held by a regional bank. They are looking to tidy up their affairs before dissolving and transferring assets to another non-profit I work with.
The properties are (roughly) currently valued by looking at local comps as follows:
Property 1: $80,000 (lower than market due to very poor condition, likely appraised too high initially)
Property 2: $160,000 (currently undergoing a rehab due to fire damage, value given is ARV, repairs are covered by insurance and are in progress)
Property 3: $250,000 (currently also undergoing a rehab on a secondary structure on the property due to fire damage, but as that process has taken over a year so far and construction hasn't even begun, value given is my estimate for current value)
Properties 1 and possibly 2 are the one that they are looking to sell. The original loan documents seem to indicate that the properties are collateralized at 26% each for 1 & 2 and 48% for 3 for the total initial loan of $325,000. The current principal remaining is ~$310,000
In my last discussion with the local bank rep, he said the bank is almost always willing to discharge a property out from under the umbrella if there is an appropriate reduction in loan principal from the sale. He also mentioned that there would need to be a new appraisal to ensure the remaining properties appropriately collateralized the remaining loan.
I've got two thoughts after seeing the original loan documents:
1. That the non-profit is essentially underwater on Property 1 OR
2. That the equity in the properties has just shifted, and the bank would be willing to allow the sale of Property 1 on its own for anywhere up to 100% of the proceeds going to pay down loan principal and not requiring more than 100%
So my questions are this:
1. How much do those original %s mean when selling a property out from under an umbrella loan?
2. If they do mean a lot, and the non-profit is essentially underwater on Property 1, would a strategy of bundling properties 1 & 2 in the same sale be a reasonable suggestion to the bank to allow a normal, instead of some form of underwater/short sale that could require an additional paydown beyond the sale proceeds?
3. Or if the numbers worked out, would it be easiest to just sell Property 2 before Property 1 to allow for additional principle paydown if the sale price of Property 1 is too low to meet what the bank would like? A sale(s) closing before the end of December is likely critical, would this likely be a slower option than bundling?
4. Am I missing something obvious?
Thank you all in advance!
There are a few answers, but any of them will need to be acceptable to the bank. The bank person listed as trustee on the original deed of trust (assuming this property used a D-T as security instrument) would be the person with the answer... more so than the local banker, who is still important for approving the deal.
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