Is the seller's bank entitled to more than remaining loan amount?

7 Replies


I'm working on purchasing a commercial property, and I have a concern about the seller's situation.

Suppose Person 'B' (for buyer) is working with 'S' (seller) to purchase a commercial property 'P1'.

They agree on some price, which is higher than the remaining mortgage principal that is owed S' bank for P1.

It turns out, however, that S has other properties (say P2) with the same bank, which haven't been getting payments, and are on the brink of foreclosure.

S is now concerned that after the sale of P1 goes through, the bank will somehow be able to claim the extra, because of what is owed for P2. Is this a legitimate concern? If so, is there a way to avoid this? For example, adding a contingency on the purchase and sale that only the balance for P1 goes to the lender, else the sale doesn't go through?

I don't want to amend the purchase/sale with a lower price and work out the depreciation difference with the seller, because my understanding is that that's technically tax evasion.

Is there a good way around this?


Dear David,

I commend you for addressing your concern.  It is nice to see when someone invests that they do not have their "deal blinders" on.  It is a valid concern that you have an it needs to be fully addressed.  Not only must it be addressed but it also must be verified through a means of Seller cooperation.  In order to answer this question a couple of things need to be clarified.  Banks "are not gods" and they can not take rights which were not granted to them.  Is the loan secured by a Deed of Trust or mortgage?  The Seller could have an issue with the bank attempting to capitalize on the sale.

The Seller has the obligation to payoff at closing the loan including but not limited to the principal, interest, penalties, and legal fees associated with the lien secured by the property.  The Lender has the obligation to accept this payment to release their interest in your Seller's property.  They are not obligated to release their interest unless the loan is paid in full (principal, interest, penalties, and legal fees).  It would be my recommendation to obtain a copy of the lien from the recorders office.  Then see if the Seller granted the Lender security of an additional property.  Then I ask your Seller to obtain copies of the liens secured by other properties.  This will show you if the Seller granted the Lender "Bank" additional collateral to the other loans.  Let me know if you need additional help

Honest and Straight is the easiest way to peace.

You need a total payoff amount for this property. Sellers say all the time payoff is XX but they do not know other liens are recorded on the property or the total amount from the lender if they have missed payments with additional fees etc.

If the lender has a cross collateral position with this property then of course the lender will want to protect their interest and be made completely whole. That said it is a case by case call. If they think the seller is fixing to file BK if their situation gets worse then they might think of going with the sale if it gets it off of the books by years end.

100 plus factors go into it and you won't know what the lender will do until into the deal. You could get an authorization to release letter signed by the seller to speak to the lender or their servicer.

No legal advice

We often cross collateralize loans with businesses where we have the FLDT on the primary loan and a SLDT on the same collateral on a different loan. That wouldn't be uncommon at all for the bank to have done that with the seller's other properties.

Dear Joel,

I agree with you about the importance of obtaining a payoff on the property.  Due to the fact my offers are very creative.  I often go to or contact the recorders office and pull the records for the property prior to making an offer.  I will pull a copy of the deed when the Seller purchased the property, a copy of any and all mortgages and deeds of trust, and any pending legal issues.  I will also go to or contact the local tax assessor and obtain a copy of the tax records for the property.  I like to be armed with all this prior to even making an offer in writing.  I do this to prevent a Seller from feeling embarrassed about his or her situation.  That situation being good, bad, or indifferent.  I like to know if the Seller could accept my offer if it is acceptable.

I can not count how many times Seller's have been mistaken about their payoffs.  That is why I have instituted the above listed process.  I have also found Seller's are or can be reluctant to provide an authorization letter for their loans.  Due to the fact some lending institutions require the Seller's social security number and date of birth.  What works well is presenting the Seller with an authorization letter and having them populate it and send it to their lending institution.

My advice or suggestions shall not be construed as legal advice either

A big thank you to everyone who replied. After working with our attorney, we'll require a written payoff agreement from the seller's bank in order to proceed, and a good portion of the remainder of the price will be allocated as rent credit, since the seller still has one business operating on the premises, which will stick around for a little while. A good win-win arrangement.

All the best!