Feedback on harsh mortgage terms

2 Replies

I have received a mortgage offer with the wording of covenants and default looking very harsh. Can you share you opinion on what you think about these?

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10. Borrower covenants and agrees with Lender that while this

Agreement is in effect, Borrower shall not, without the prior written consent of Lender:

10.1. Debt. Create, incur, assume, or suffer to exist any debt except: (a) debt to

Lender; (b) debt outstanding on the date hereof and shown on the most recent financial statements submitted to Lender; (c) accounts payable to trade creditors incurred in the ordinary course of business; and (d) debt secured by purchase money security interests.

10.2. Guarantees. Assume, guarantee, endorse, or otherwise be or become

directly or contingently liable for obligations of any individual or entity, except guaranties by

endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary and usual course of business.

10.3. Limitations on Liens. Incur, create, assume or permit to exist any mortgage, pledge, security interest, encumbrance, lien or charge of any kind upon any of its properties now owned or hereafter so quired, or assets of any character, except: (a) liens and security interests in favor of Lender; (b) liens for taxes, assessments, or similar charges cither not

yet due or being contested in good faith and for which appropriate reserves are maintained; (c) liens of materialmen, mechanics, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; and (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business.

10.4. Disposition of Assets. Sell, tease, or otherwise dispose of any assets or

properties except in the ordinary and usual course of business.

10.5. Continuity of Operations. Cease to maintain continuity of present

operations, its current management and ownership, and its current form of existence, or transfer of sell any interest in Borrower, or any interest in any subsidiary of Borrower, to any other person.

10.6. Transfer of Ownership. Issue, transfer or sell any of its ownership interests.

10.7. Change of use of Property. Borrower shall not change or alter its use of the Property without the prior written consent of the Lender, which consent may be withheld in the Lender's sole discretion.

10.8. Sale of the Property. Permit the sale or transfer of any legal or equitable interest in the Property.

10.9. Equity Distributions. Make any dividend or distribution for or on account of equity interests in Borrower if, either before or after giving effect to such dividend or distribution, a default or an Event of Default would occur or has occurred and is continuing.

10.10. Negative Covenants from other Documents. All negative covenants contained in any of the other Documents, as applicable to Borrower, are hereby incorporated by reference herein.

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11. Default: Each of the following shall constitute an event of default:

11.1. Non-Payment of Principal or Interest. Borrower failing to make the required principal or interest payments in accordance with the Note.

11.2. Breech of Condition. Any Borrower violating any other term, condition, or representation contained in this Agreement, the Note, the Deed of Trust, the

individual Guaranty Agreement, or any other Document.

11.3. False Statements. Should any warranty, representation or statement made

of furnished to Lender by or on behalf of Borrower under this Agreement or any of the other Documents be false or misleading in any material respect in the time made or furnished, or become false or misleading in any material respect at any time thereafter.

11.4. Default of Additional indebtedness. Any Borrower defaults under any loan, lease, extension of credit, security agreement, purchase or sales agreement, or

any other agreement in favor of Lender or any party other than Lender that continues beyond any applicable notice and cure period.

11.5. Defective Enforceability. Should this Agreement or any of the other

Documents cease to be in full force and effect at any time and for any reason.

11.6. Insolvency. The insolvency of Borrower, the appointment of a receiver

for any part of Borrower's property, any assignment for the benefit of creditors, any type of

creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

11.7. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency, including any garnishment,

attachment, of levy on or of any of Borrower's deposit accounts with Lender.

11.8. Material Adverse Effect or Material Uninsured Loss. The occurrence of any materiel adverse effect in (a) the validity, performance or enforceability of any Document, (b) the legality, financial condition, business, operations, properties, prospects, or profits of Borrower, or (c) the ability of Borrower to fulfill its obligations under the Documents or any material contract to which it is a party.

11.9. Tax Lien. A notice of lien, levy or assessment is filed of record with respect to all or any of Borrower's assets by the United States, or any department, agency, or instrumentality thereof, or by any state, county, municipal or other governmental agency, or if any taxes or debts owing at any time or times hereafter w any of them becomes a lien or encumbrance upon any asset of Borrower.

11.10. Judgments. The entry of 2 judgments or the issuance of a warrant of attachment, execution or similar process against Borrower or any of its assets in excess of $xx which shall not be dismissed, discharged, stayed pending appeal or bonded within forty-five (xx) days after entry and, if bonded, such bond (or replacement bond) shall not continue in

effect at all times until such judgment is dismissed or discharged.

11.11. Adverse Change. An adverse change occurs in any Borrower's financial condition, which causes Lender to believe that the prospect of payment or performance under this Agreement is impaired.


It's too late in the evening for me to read that much legal jargon, let alone try to digest it. You really need to speak with an attorney to ensure you understand the impact of all these clauses and you can make an educated decision.

Originally posted by @Peter Schiff :

I have received a mortgage offer with the wording of covenants and default looking very harsh. Can you share you opinion on what you think about these?

--------------

10. Borrower covenants and agrees with Lender that while this

Agreement is in effect, Borrower shall not, without the prior written consent of Lender:

10.1. Debt. Create, incur, assume, or suffer to exist any debt except: (a) debt to

Lender; (b) debt outstanding on the date hereof and shown on the most recent financial statements submitted to Lender; (c) accounts payable to trade creditors incurred in the ordinary course of business; and (d) debt secured by purchase money security interests.

10.2. Guarantees. Assume, guarantee, endorse, or otherwise be or become

directly or contingently liable for obligations of any individual or entity, except guaranties by

endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary and usual course of business.

10.3. Limitations on Liens. Incur, create, assume or permit to exist any mortgage, pledge, security interest, encumbrance, lien or charge of any kind upon any of its properties now owned or hereafter so quired, or assets of any character, except: (a) liens and security interests in favor of Lender; (b) liens for taxes, assessments, or similar charges cither not

yet due or being contested in good faith and for which appropriate reserves are maintained; (c) liens of materialmen, mechanics, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; and (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business.

10.4. Disposition of Assets. Sell, tease, or otherwise dispose of any assets or

properties except in the ordinary and usual course of business.

10.5. Continuity of Operations. Cease to maintain continuity of present

operations, its current management and ownership, and its current form of existence, or transfer of sell any interest in Borrower, or any interest in any subsidiary of Borrower, to any other person.

10.6. Transfer of Ownership. Issue, transfer or sell any of its ownership interests.

10.7. Change of use of Property. Borrower shall not change or alter its use of the Property without the prior written consent of the Lender, which consent may be withheld in the Lender's sole discretion.

10.8. Sale of the Property. Permit the sale or transfer of any legal or equitable interest in the Property.

10.9. Equity Distributions. Make any dividend or distribution for or on account of equity interests in Borrower if, either before or after giving effect to such dividend or distribution, a default or an Event of Default would occur or has occurred and is continuing.

10.10. Negative Covenants from other Documents. All negative covenants contained in any of the other Documents, as applicable to Borrower, are hereby incorporated by reference herein.

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11. Default: Each of the following shall constitute an event of default:

11.1. Non-Payment of Principal or Interest. Borrower failing to make the required principal or interest payments in accordance with the Note.

11.2. Breech of Condition. Any Borrower violating any other term, condition, or representation contained in this Agreement, the Note, the Deed of Trust, the

individual Guaranty Agreement, or any other Document.

11.3. False Statements. Should any warranty, representation or statement made

of furnished to Lender by or on behalf of Borrower under this Agreement or any of the other Documents be false or misleading in any material respect in the time made or furnished, or become false or misleading in any material respect at any time thereafter.

11.4. Default of Additional indebtedness. Any Borrower defaults under any loan, lease, extension of credit, security agreement, purchase or sales agreement, or

any other agreement in favor of Lender or any party other than Lender that continues beyond any applicable notice and cure period.

11.5. Defective Enforceability. Should this Agreement or any of the other

Documents cease to be in full force and effect at any time and for any reason.

11.6. Insolvency. The insolvency of Borrower, the appointment of a receiver

for any part of Borrower's property, any assignment for the benefit of creditors, any type of

creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

11.7. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency, including any garnishment,

attachment, of levy on or of any of Borrower's deposit accounts with Lender.

11.8. Material Adverse Effect or Material Uninsured Loss. The occurrence of any materiel adverse effect in (a) the validity, performance or enforceability of any Document, (b) the legality, financial condition, business, operations, properties, prospects, or profits of Borrower, or (c) the ability of Borrower to fulfill its obligations under the Documents or any material contract to which it is a party.

11.9. Tax Lien. A notice of lien, levy or assessment is filed of record with respect to all or any of Borrower's assets by the United States, or any department, agency, or instrumentality thereof, or by any state, county, municipal or other governmental agency, or if any taxes or debts owing at any time or times hereafter w any of them becomes a lien or encumbrance upon any asset of Borrower.

11.10. Judgments. The entry of 2 judgments or the issuance of a warrant of attachment, execution or similar process against Borrower or any of its assets in excess of $xx which shall not be dismissed, discharged, stayed pending appeal or bonded within forty-five (xx) days after entry and, if bonded, such bond (or replacement bond) shall not continue in

effect at all times until such judgment is dismissed or discharged.

11.11. Adverse Change. An adverse change occurs in any Borrower's financial condition, which causes Lender to believe that the prospect of payment or performance under this Agreement is impaired.

I buy and sell in the Phoenix market.  Is the lender a national lender or a local hard money lender? I can tell you just by knowing who it is or their general lending region what to expect. Do they have a lending license or private lender? Or are you wanting to be a lender and just seeing if the included conditions would fly in the market?