Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes
When financing a 8-unit apt, bank asked owner to assign leases as additional security on top of the property itself. Is it normal in apt financing or negotiable? Meaning, property alone should be sufficient collateral for bank loan and no need to assign leases and rent to bank as additional security. Anyone has any success in fending off the rent assignment with bank/lender?
Look forward to your comments.
Thanks a lot.
Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes
9y
I'm fine with it if in the default scenario. However, I'm concerned with the covenants and constraints lender requires in non-default circumstances. Looks like bank is putting a lot of operational constraints in normal / non-default situation, which concerns me.
One of the covenants reads like this: (so you cannot modify, terminate, release leases without writen consent from lender. This is a lot to ask when landlord is operating normal day-to-day operation)
Borrower will not, without the prior written consent of Lender, either (i) modify any of the Leases; (ii) terminate the term or accept the surrender of any of the Leases; (iii) waive, or release the "Tenant" from, the performance or observance by the "Tenant" of any obligation or condition of any of the Leases; (iv) permit the prepayment of any rents under any of the Leases for more than one (1) month prior to the accrual thereof; or (v) ...
Real Estate Agent · Plano, TX · Member since 2015 · 734 posts · 511 votes
9y
Yeah... I'd look for another lender.
These terms technically means you can't even evict a non-paying tenant without written permission from the bank. You can't do "cash for keys" and can't let a tenant upgrade or downgrade a unit within your own property w/o consent. Sounds too restrictive in my opinion.
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
9y
Well done on reading the fine print. Commercial loan agreements are stock full of language that protects the lender. It's not like residential financing where regulation requires consumer protection and you have more balanced terms. Commercial investing and borrowing is "buyer beware".
You will just have to decide which loan terms that you are going to put you foot down on and which ones you choose to live with and assume that they will never be enforced (or switch lenders). I dug my heals in on boilerplate language that required annual reviewed financial statements and annual appraisals for insurance purposes and let other stuff go (even though this lender never enforces all the provisions that I questioned). They are a 75% partner and they are the primary reason that I can afford to invest and support my family; so, I'm okay with the give and take.
I dug my heals in on boilerplate language that required annual reviewed financial statements and annual appraisals for insurance purposes and let other stuff go (even though this lender never enforces all the provisions that I questioned). They are a 75% partner and they are the primary reason that I can afford to invest and support my family; so, I'm okay with the give and take.
Yeah, I had to cope with that too - - just sent the rental PnL and nothing else even though requested. Never had a problem. Parochial asset manager need to justify his job.
There's nothing they can do or action they can take as long as you pay the mortgage on time :grin: