Lenders giving conflicting info on a loan for a small apartment

[Nick B.]

I spoke with two lenders discussing a potential apartment deal and got conflicting info.

A small regional bank said they would need appraisal (obviously) and environmental study paid by me as a part of their underwriting process. That's on top of their 1% origination fee. They would not lend directly to me but to an LLC that would own a property. They would also check on debt-coverage-ratio every quarter and call the loan if DCR dips below 1.25.

Another lender - a big "money center" bank - said that all they need is an appraisal (they would pay for it) and nothing else - no LLC or environmental study. The only thing I would pay them is 1% origination fee. They also would not care about DCR as long as I make required payments.

Both loans are recourse and terms are similar although Big Bank's rate is .5% less.

Now I am confused about LLC and environmental study: are these requirements lender-specific? I read many times on BP that LLC does not really protect from liability and all one needs is a liability & umbrella insurance policies. True or false?

As for environmental study, what is it for and why one bank asks for it and another one does not? Do I need it?

Thanks
Nick

[Mark Creason]

Nick,

Hire a reputable phase 1 company and phase 2 should not be necessary.  They would need a very specific reason to do a Phase 2 such as the being a former gas station or something similar.  Is the property in North Texas?

With environmental issues, the government will go after anyone and everyone in the chain of title.  As Joel stated, with a good phase 1, you would be able to state you did proper due diligence and claim innocence. 

Mark