I recently purchased my first duplex using short-term financing and am now in the process of refinancing into a portfolio loan (as the property is held in an LLC).
I have found pretty favorable terms (4%, 80% LTV, 25-year amort, no balloon, adjustable every 5 years with caps). However, at the closing table, when I received the documents, I was surprised to find that the loan contains a demand feature that allows the lender to call the note due for any reason (not just in an event of default).
Is this common for commercial loans, and do you have any tips for convincing a lender to remove this provision?
Yes, this feature is somewhat common in commercial loans. The question I have is, if it is a 2 unit, why would you take out a commercial loan on it? Just because its in the LLC's name? Are you having to sign a personal guarantee?
A better way, and better terms would be to revert title back to your personal name. Refinance it on a Fannie Mae loan for the best terms, then after closing the loan, move it back to the LLC. Fannie Mae changed their rules back on 6/1/2016 to now allow this without it violating the Due on Sale clause. See below:
Thanks for the insight on the due-on-sale issue; I was not aware of this change. However, for this property, it is a 50/50 JV, so unfortunately, I think I have no choice but to go down the commercial path with a personal guaranty.
Well not necessarily, you both could apply as a personal loan through Fannie Mae, and still move it to the LLC afterward. Fannie Mae just wants the borrowers on the loan to at least be the majority members of the LLC which you both would be. So it still works.