Can You Bundle Properties for Sale to Satisfy Your Lender?

1 Reply

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.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here