Commercial Mortgage Assumption

5 Replies

What fees are associated with assuming a commercial mortgage and how long does the process typically take?

This is a prospective property in Georgia I'm looking at. 

I would be really surprised if you could simply assume a commercial mortgage.  More likely you will have to go through the same underwriting process as the previous or current mortgagor - then the current borrower would be cleared, and a new mortgage would be written. In that case you'll have pretty much all the same costs that came with the original loan.  There may be value in using the current lender to do the new loan if you could get away with not having to do some of the appraisals or valuations, but usually these are just treated as a brand new loan. 

Thanks for the response, Blair. 

This is in fact an assumable commercial loan on a 52 unit multifamily building that started only 6 months ago. I'm still in a preliminary stage, but of course I am wondering why the seller needs to sell after 6 months. 10 year call on a 30 year amortization at 4.845%.

Hi Brian,

Assuming this is a life insurance/agency loan, the loan documents should detail any loan assumption fees. Typically 1% of the outstanding loan balance, some borrower will negotiate it down to .5% for the first assumption. The lender, or loan servicer will also charge legal fees and “reasonable” processing fees.

Do you know who the loan servicer is? Loan balance? Entity structure assuming the loan? (Will likely require the entity to be an SPE, and a complicated structure is likely to raise legal costs.)

In terms of the process, they will underwrite the new entity the same and typically require they be the “same or better” than the current borrower. They could also add structure to the loan, but given this is a MF asset, there likely isn’t anything to structure around (major tenant rollover, capital improvements, etc.)

Let me know if you have any other questions I might be able to help with.

Hi Alex,

Thanks for responding. I will find out if this is indeed an agency loan or not. The assumption fees are stated at 1%. I will also attempt to find out who the loan servicer is. The loan balance is not too far from the initial balance of $2,185,000 as it is only 6 months old. When you ask about the entity structure assuming the loan, do you mean my LLC that would be assuming it? Talking about SPE is beyond my scope of knowledge. I own an LLC and I was thinking IF this actually went ahead, I would assume into the LLC. Perhaps that is incorrect? That what real estate attorneys are for!

Brian, 

I would guess you would need to form a new LLC, to be a Single Purpose Entity (SPE). Typically with assumable mortgages, the actual borrowing entity can only have one purpose, which is to own and operate the collateral and no other assets. (Its to prevent the co-mingling of funds) The new LLC can be owned by an existing LLC, but the SPE LLC has to be the only owner of the property.

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