Real Estate Finance and Transactions

8/2/2019 Real Estate Finance and Transactions

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RE -- Tangible generally doesnt depreciate PHYSICALLY -- rapidly to the extent that it does (IE irine strikes)

its INSURABLE you can figure out who owns it

all these things make it desirable for securing credit/advances Disadvantages

Not very fungible grain is grain -- you dont care if you get a bushel of this grain or that RE is unique

Not easily valued no way to know what the market is really each piece is unique

cant move it -- cant send it to where it can be sold for better prices while this can be an advantage -- personalty can dissapear overnight and

w/e it secures can be at risk liquidity issue cant use it for all w/e you want to use it for

How do we know about the bundle of sticks -- as a potential purchaser lender to convey/transfer -- you need to own it, you can only transfer what you own. If you dont

have all the sticks, you can only transfer the sticks you have look to prior owners of the prop for the time they owned it

has to be in writing, and recorded to be an enforceable right as against a BPV or leinholder

NC -- raceCLosing

lender typically wants a survey zoning, restrictive covenants, is everything on their land? Easement -- across rear lot line

say, what easement is that? flip the packet and talk to them about a Title insurance comittment Commitment to issue title insurance

when closes -- well insure that they have good title to the property also going to insure that the bank has a lien on the property which

is a first lien on the prop for 144k like survey, Tit Ins isnt a requirement, but lenders want someone to tell them and

back them up that they have a first lien on the property I cant tell the difference between a forged and a non-forged document i cant tell who all the children were, who may have/had inheritence right there are a list of about 18 things I just cant tell you I cant tell you that the surveyor did the correct job, or didnt make even

the smallest mistake lender is in the process of putting together a package once the loan closes so taht they

can sell the loan to someone else


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package is the only way you can make it economically possible for a third partyto evaluate the loan

exceptions taxes due and payable restrictions of record appearing at ---

currently not violated future violation will not cause a forfeiture HUD-1

Second page -- 2 colums on right hand side -- paid from the bowers fund atsettlement

paid from sellers fund at settlement itemizing closing costs

commission to be paid to brokers less deposit retain

when put under K, deposit put down, held by listing (seller) broker listing broker simply retains

fees paid in connection with the loan loan origination fee

fee charged by bank for originating the loan, finance charge, bankcollects and it helps them with admin cost of orgining the loan

appraisal fee POC -- Paid outside closing get rid of market risk

if youre loaning 170, want to make sure youre at leastequally collateralized if not over-collateralized

cant insure the market risk -- appraiser says, in my oppinion credit report fee

dealt with the market riskt but i dont want to loan to a dead beat, i do NOT want to have toforeclose on a loan

Im not getting hte benefit of my bargain\ tax service fee

want to make sure that the taxes get paid and if theyre not thatthey send the bill to them

Govt trumps all Tax lien is first in priority always

items reqd by lender to be paid in advance int in advance at this closing -- charged so that when the first

regular payment comes due on the loan, itll be a regular paymentof the same amount everymonth towards amortizing it, in order todo that, with int being paid in arrears (being paid for after youvehad the use of it)

mortgage insurance premium allowed to be charge on highrisk loan

borrower who has a questionable past


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loaning a large amount of the purchase price LTV amount is high

no equity cushion when/if they

need to foreclose -- theyre covered for their

deficiency if any reserves

budgeting for the borrower we got bills coming due soon (insurance bills and such) --

we need to know youre gonna pay them if you dont pay the insurance and the house burns

down were effed if you dont pay your taxes and they foreclose, were

effefed youre gonna pay a little extra every month, and were

gonna put that in an account no interest

aggregate adjustment under applicable fed lending guidelines -- banks required

to reduce the escrows by an amount to take into anaccount that those two bills do not come due on the sameday

only have to escrow enough for each when they come due common funds, theyre pooled dont have to ahve enough money in the account to

pay both bills at the same time

fees to the atty document prep seller pays for prepping the deed

repping the buying in connection with closing the loan/searing thetitle

prorate taxes for the year seller is responsible for the time they own the property credit to the buyer and a debit against the seller, b/c the buyer is going to

be responsible for paying all the taxes when they come in 170k price, 3k of closing cost

credit for taxes new loan of 144 147238- 173 = we need to write a check for some 30k if we wanna buy this

house monthly payment statement

princ and int tax escrow hazard insurance


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no flood insurance cuz youre not int he flood zone mortgage insurance

truth in lending disclosure statement 70s -- law TLA advertising really low interest rates

but there were all kinds of fees, expenses and costs misled in what they were paying in financing charges thought they were getting .05 but really getting .1

everybody has to disclose how much money lenders are making so that they canunderstand how much youre paying in interest

every bank has to use the same form in reality

all my furniture is in a truck coming from ATL to here, do you really thinkthis late in the game theyre gonna say -- nope no deal?

illustrates four blocks at top, were looking at the loan and were saying that the loan

on the note rate is 6.7/8 percent TLA -- APR 7.426

amount financed -- saying its 143k, the loan is for 145k, the 2k got paid in the origination fee, bank is really only parting

with 142k ive got check for 145k, but im sending them back 2 the APR is yielding more

still getting really 6 170 house costing you 300 some odd dollars

History

usury -- negative view, sin would transfer interest for a loan the income from the land was tantamount to interest could buy it back

problems - what if person wanted borrow money for improving property

particularly didnt work well with the concept that you would lose theproperty

well take title the property, you pay rent or w/e but stay on the land, then buy itback plus a little extra

day certain by which you have to pay back by the full amount of hte money if you dont, you lose your right to pay back for the property

little distressing if you tookt he money and you built the castle and your wagonlooses a wheel on the way to pay the dude back and you lost your castle

lost your equity Law Day

specific day by when all debts had to be paid people went to courts of equity


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seeking fairness you know -- really not fair that if someone misses this payment by a day,

when theyre prepared to pay it back and can pay it back, for them to losethe property

became uncertain if you were the person who had loaned the money when the

property became yours I need a certain date birthed is the mortgage

in many JD -- lien on the property in order to realize the benefits you have to foreclose

before this concept there was no foreclosure of the prop b/c the Lendedalready owned the property

whoever buys the prop at the Fsale gets title, money split up between those of whom are owed dd

fair still -- arguably the property is sold for what its worth, and if its worthmore than the loan then my equity is preserved

now we have the certainty of sale and a protection of the borrowers equity borrower has right of redemption until property is sold Can always pay back until sold off

were not going to kick people off the prop or deprive them of their propw/o giving them the opp to pay off what is due on the loan in order to getthe property back

What can mortgages secure have to be reducible to monitary amount sale -- proceeds -- proceeds are divided, have to know whats owed

its a financial transaction

you can monitize damn near anything Go back to contracts -- what youre really talking about is consequential damages but thats wishywashy

but if you say hey, if you dont im gonna have to hire a cab, and youre gonnahave to pay me back

if you want it to be secured by a mortgage, you have to figure out how tomonitize it

dont have to know how much money you are owed on date mortage given whats critical is how much is due when youre about to foreclose might have an obligation that today you dont know how much is owed but

when defautl takes place and you can calculate the amount, then that issufficiently monitized and you can secure that

if the bank agrees to loan you enough money to build the house up to x, they dont know from the outset how much thats gonna be

cant have a penalty clause -- obviously not going to enforce an unenforceable obligation just b/c its in a mortgage

cant have a mortgage to enforce a gift cant secure a pledge to the Nature preserve with a mortgage on the property


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practically speaking -- however if youre trying to sell your home and buyers do a title search and see you owe

1000 bucks for not picking up your old roommate, theres stilla cloud on the title youre not going to say, hey, thats a penalty clause, its non enforceable the buyers are gonna say, take care of it

if you have an obligation thats clearly a monetary obligation agreed to pay somebody 500 a month for the next five years, pay it by the first of

each month that obligation is secured by a mortgage

if youre the party expecting the 500, youre only foreclosing on 500 bucks,thats whats owed in order to redeem

Hold a sale to SATISFY WHAT IS OWED can only foreclose once

foreclosure wipes out the Mort/DoT under it the buyer takes the prop free and clear

acceleration clause balance of the obligation becomes immediately due and payable upon the

event of default If you acquire property and record it, and acquire it before the restriction is recorded, you

acquire it free and clear of the restriction regardless of the fact that the owner may havesigned that restriction before selling you the prop

I go buy a house, borrow money from BBT to buy the hosue, when I buy thehouse I also enter a loan with BBT, DoT recorded at same time Deed is recorded

thereon my proper is encumbered by the DoT until its satsified, released,or subordinated to something

release

-- saying the mort hasnt been paid off -- he still owes me money, but thisproperty is released want to get refi from state credit union on small piece

can get BBT to subordinate to the 500 k DoT held by state credit union They get the same quality of title that I had when the mortgage was given

when they foreclose ont he property, whoever buys at that foreclosure sale, buysthe property with the same title that is being sold at the foreclosure

BBT forecloses the state credit union DoT is cut off

Owner originally conveyed to Oliver (me)

I give DoT to BBT if you get from BBT, you dont care what I did after that, youre not

buying from Me, youre buying from BBT If BBT entered into subordination

youd find that under BBT in the index I (oliver) cant do anything to affect BBTs title

Title theory


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Legal title to land transferred to the trustee with BBT as beneficiary property sold by trustuee

power of sale statutory provision, special proceeding, has to be in DoT, 45-60 days

makes it easier for bank to buy at the foreclosure sale

Lein theory if mortgage -- property would be sold by Lien holder/bank

lender can bid, but theres an inference that that might not be a validforeclosure sale, a little more subject to attack

bring action on the mortgage have a lawsuit, discovery, judge has to order the forclosure sale 6 months -2 years+

availability in institutionalizing a credit is a phenomenon of the last 50 years or so due on demand, due on maturity due on sale

payment in arrears Payment in arrears is a term describing payments made after a service has been

provided. In this case use of the word "arrears" does not imply any breach. Dragnet

this secure the loans from Oliver to the Bank in the amount of 500k AND anyother loan Mr. Oliver may ever get from the Bank

Any other loan he owes the bank alread or may ever owe the bank obviously describes the property you used as collateral and seen in schedule a of

DoT DoT could also say -- any other property acquired by Oliver

AACOLL BOth make life difficult for me

I want to know what you owe and what all the property secures Title search -- look at the mortgage

I know theres a 500k that needs to be paid off I want to finish the basement in my house

500K mortgage probably worht 625 after finish the basement

if it says plus whatever else Oliver owes you dont know how much that mortgage is for

Drag not looked upon with great favor especialy not looked upon favorable from the Kter comes in and says I relied on

the 500k, if you wanted it to secure more, you should have rerecorded People have to be able to rely on the record

AACOLL Even a little bit more insidious

what if I were to subsequently acquire a house at the beach getting ready to sell the house

they do a title search


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when they search the beach -- theyre not going to be seeing aDoT recorded in Orange County NC

even if I buy it in hillsborough, if I bought it after buying the other house if it says all the property I may ever own in NC, a title searcher

searing the chain of title on the second house, bought later, I dont

know about that other lien not enforceable as to third party BPV, or lien creditors may be enforceable as between me and the bank

wouldnt have the benefit relating back, doesnt have that priority -- the

property was after acquired, after the Improvements to the property

when I give BBT a DoT, and then improve the basement They have alien on that

its part of hte real property that relates back to when their lien was firstfiled

things that are not mortgages Mortgage substitutes

ways people try to have something that acts like a mortgage but avoid theforeclosure process

in many JD, you dont have a special proceed foreclosure infront of theclerk

get around anti-deficiency interest

a whole bunch of usury law/interest rate limitations on mortgages why dont we just not do a mortgatge?

Allow appreciation/participation/co-ownership in prop well I dont really want to loan him the money, illto take an equity position in the

property I want to get paid back before they do

maybe can avoid being involved in a Bruptcy of the borrower doing this prevent any junior liens on the property

I want title, and Ill give you the title back when you pay me all the moneyyou owe me

you can dress this up any way you want if its a loan, its a loan

deed in escrow ill go record it if you dont pay me back

both the absolute deed and deed in escrow are going to be looked at with greatdisfavor if you went into court and challenged the title of the the person who titlethrough this

especially when there are things/documents evidencing both paritiesintentions and ideas about the transaction

sale transaction/


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tax assessor says worth 500k but I sold it to him for 50k and can buy it back for 60 does that look like a loan or an outright sale

I gave him a deed to my house, lived there the whole time, and never paid any rent

I paid all the expenses, If you sold the hosue, would you still be payinghte expenses?

btw i took the 100k I sold the house for and built a garage people trying to avoid the borrowers rights, basically

why would borrower agree? Have to

In some JD -- may find people trying to get around mortgage taxes if you want to record a mort, theres a tax to have it recorded

What happens? if I loan the 100k and get the deed -- ungrateful borrower

you cant keep the deed to my house courts gonna say, this is a disguised mortgage and you have a equitable lein

you can go through a judicial lien at best but you tried to get around this act of redemption and all other rights, and

Im inclined to treat you as an unsecured creditor and you can sue andget a Judgment Lien

mort subs that arent inherenly bad

negative covenant as long as I owe so and so money, i wont transfer an interest whole or in party

int he property to anyone else does htis mean you cant get a lien? no but you damn werll dont wanna be the party who took a lien on the property in

the face of this paper on the record that says the party you took a lien from wasincapable of transfering that interest

installment land contract seller of the propery sells the prop but retains title to the prop until they receive

the full purchase price if you make the installment payments on the property on time and when you pay

me all of it, ill give you title problerms

owner goes Bankrupt owner puts a mortgage on the property either wont or cant deliver the deed to me when it comes time for him to

do so number of cases in NC, treated as equitable mortgages

have to be treated as such require people to give you your equity of redemption


10/60

many JD require to be recorded upon recordation, provide rights to buyer

Trustee under DoT doesnt have a really fiduciary duties as you think of them

Lender can be TTee -- and then sub it outf

protecting against riskMarket riskLender POV -- how to protec against

Lender wants to minimize amount loaned dont want to loan money on project that arent going to be successful and buyers

and investors are generally of the same mindset want to get paid back first on the returns of the property credit enhances -- other sources of repayment other than the property

Borrower/purchaser want tho loan the most they can and

What makes this a good investment for borrower or what makes this good collateral for a loan isyoure the lender?

have to understand the appraisal should appraise it at its HIGHEST and BEST USe

under the circumstances that we find it -- whats the value of the property what is highest and best use?

No matter how we try to dress this pig up, its always about someones opinion were gonna talk about cap rates and what not but at the end of hte day its just

an opinion, its a based opinion, but an opinion nonetheless 3-4 blocks from durham exprssway small house on lot of 2.5 acres not in a great neighborhood

house isnt in best condition that appraiser has made the assumption that highest and best use of the

property is to have a small house in east durham but zoning might allow some other sort of use, which may make it worth a

lot more best and highest use doesnt necessarily mean its constrained to its current use

UNDERSTAND

when you start talking a bout whether its a good deal or not its a subjectiveopinon

comparison apprach similar situated similarly constructed sell for?

comperables are starting to skew if when the guy buys the house on franklin for a million


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replace its assets when they wear out, therefore can ignore capital amortizationand depreciation.

Cashflow near and dear to owners heart -- thats how much money I have coming out of the project

can tells you what your return is on the money you have invested

bought for 1MM, borrowed 750k, put 250k in take the cashflow as a ratio to the amount you put in tells you a return onyour equity investment

youre getting that much money back on your equity -- are you makingmoney?

leverage youre paying 6 % on the banks money -- and your rents are covering that youre using somebody elses money and getting a return on it

its not your money and you didnt pay for it idea that I can take someone elses money and leverage it into a return for me

predominately borrowed money could also find an investor who rather than loaning you money would give

you an equity investment and would get a fixed return preferred return of .1 on my money

I get, after all the expenses are paid, .1 of my investment beforeyou get anything and afterwhich well split it

Cash flow show return on Equity NOI will show you what your return on your costs is

can establish a ratio between NOI and what I paid for the property on one level, not very meaningful info

it has nothing to do with your debts

lets you start making comparisons with OTHER property w/o worrying about whatother peoples debt are NOI/ cost or price

gives you a Capitalization rate find an appraiser

im trying to figure out what an existing office building is worth Im going to look at comparable office buildings and what they sold for

I can also find out what the NOI is for those other buildings with respect tothat

I can start coming up with what the cap rate was with respect to thoseoffice buildings

when I compared the cap rates and they were between 7.5-8% I can divide that by 7 % and I can get an Idea

it reduces down to cost and NOI doesnt matter what their debt or their size

it tells you what people thought about that as an investment and it allows you to compare investsments that may not otherwise

have all the same qualities


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Got an office go to a bank get the to cover .75 go to some friends and get you to cover the other .25 the office is already covering and its .2 vacant

so if it increases thats money straight to the bottom line

take the cap rate and compare it to your other investments

mathematically can come out with a range of when I go talk to the bank and my investment buddies and say compare this with your

other investment opportunities were not still talking apples to apples

Balloon payment The term balloon payment arises because if you hold back most of a debt and pay it only towards

the end of the agreement, both those last payments and the total amount repaid are much larger.The debt is inflated like a balloon due to Compound Interest accumulating on the large sum. This ismore technically known as partial amortization .

100k sqft ffice .9 leased at 20/ftop expens at 6/ftgross rev at 1.8 millop expenses -- 600kdebt services of 725 a year postive cash flow of 475K

invested 2.5M (7.5M loan) .475/2.5 =19% return on your investment ROE return on equity what if .x of building leased by enron --

gone went from 475 postive cash flow to 75k positve cash flow -- not sleeping so well

at night 1.2MM NOI/10MM cost

.12 cap ratecap rate

Advantage One advantage of capitalization rate valuation is that it is separate from a "market-

comparables" approach to an appraisal (which compares 3 valuations: what other similar

properties have sold for based on a comparison of physical, location and economiccharacteristics, actual replacement cost to re-build the structure in addition to the cost of the land and capitalization rates). Given the inefficiency of real estate markets, multipleapproaches are generally preferred when valuing a real estate asset. Capitalization ratesfor similar properties, and particularly for "pure" income properties, are usually compared toensure that estimated revenue is being properly valued.

Depreciation taxes -- cost recovery
http://en.wikipedia.org/wiki/Compound_Interesthttp://en.wikipedia.org/wiki/Compound_Interesthttp://en.wikipedia.org/wiki/Compound_Interesthttp://en.wikipedia.org/wiki/Real_estate_appraisalhttp://en.wikipedia.org/wiki/Compound_Interesthttp://en.wikipedia.org/wiki/Real_estate_appraisalhttp://en.wikipedia.org/wiki/Compound_Interest


14/60

we think they ware out can deduct (recover) from w/e income you ahve that depreciable portion of the

cost Improvements to RE -- for resi can depri for 28.5

non resi over 39.5

if you so choose so 1/39 of the value land doesnt depreciate - it just sits there

reduces your basis deduct the interest you pay on the loan as an expense

68k tax free by 2008

that amount of interest that youre paying is less going to paying taxes on more than youre getting in cash flow amortization will eventually beat depreciation paying taxes on the amount youre reducing the principle of the loan basically

why people dont own buildings forever this isnt as much fun what can you do?

sell it and try and do it with another property refinance int will go up,

1031 exchange -- like kind basis goes with you, its carries over no realization event here, you dont sell, pay taxes, nothing

IRR internal rate of return

return based on tax situation, leverage and everything else net return divided by net investment taking into account the timing of your investment if you get your money back quicker, then you have the opportunity to reinvest it in

somethingelse the quicker you get your money back, the more it means to you

what the overall yield can be based on the overall return on the investment your put your 2.5 in and youre getting it back pretty quickly and once youre getting it back and youre still getting a return

substantial benefits associated with depreciation and and interest deduction want to structure your investment to take advantage of it want it to be a passthrough so that you can get the benefit of the taxes

active investor (have to be) comparable-- typically resi replacement-- owner occupied industrial, uniqueness of prop is prob not a large factor least susceptible of being valued appropriately by the appraisal -- land

fertile field -- youre talking about what it could be worth

market risk -- valuing prop question


15/60

how is it that lenders are willing to let leverage take place why loaning at 7.5 when i can get a return on my equity of 19

good for the goose, good for the gander also, they get paid back first before anyone else gets paid back

if youre an investor you get paid after operating expense and after debt servicing lenders are focused on we get paid back first

since they get paid back first, what they care about is relationship between amount of loan andvalue of prop

they want the LTV to be as low as possible if youve got a 10MM prop-- they get paid back first and dont care if they have to sell iit

quick for 8 they get theirs dont give a shit about your money

assignment of rents rights to have receiver appointed want some sort of credit enhancement

might look at borrower and say youve got a tennant who has .1 and it comes up for renewal next year i want a LOC that says if they dont renew and you dont pay me down youre going to pay

me downnonrecoursealso try and spread the exposure -- find some partners to go in with you

Market/value risk lender will want to be paid back first

small LTV as possible credit enhancements, other sources of repayment other than RE if possible

borrowers want to loan as much as possible maximize leverage limit their own exposure structure the loan to expose as little as their assets as possible SPE -- single purpose entity nonrecourse -- try and persuade that asset is worth the loan so not have to

provide guaranty Lenders are going to be looking for guarantys, other credit enhacing

norecourse would try to be negotiated, obviously borrowers try to spread their exposure -- other partners

providing equity so that each persons equity not so great try to provide that theyre not fully guarantying loans, im only on hook for

20% (investment precentage or something)committment letter

perm commit to make the loan as soon as posible gonna enhance your ability to go get the construction loan

looking for loan with fixed cost, nonrecourse, so that we know what our exposure is --the value of hte asset


16/60

we know if things dont go the way we want them to, we can just dump the assetand only lose our equity

Functions served securitizes the sort term construction loan

makes sure the bank gets paid back shortly

when mr. bank feels good about making your loan -- instead of it beingprime+2 it may become prime +1

loan commitments help you get the tennants committed tenants help you get the loan, etc

pursue all of them at the same time acquiring property

youd want to know you had a perm lender lined up before you did the duediligence and paid for the due diligence to buy it

inspections strucural physical, zoning, environmental

appraisal deposit towards the purchase, firm (at risk) commitment fees

50-100k spend on finding out whether or not you buy the prop WHAT ARE YOU PAYING THE LENDER?

important ST financing

fairly high admin costs req a staff of some size to deal with it

banks are set up for this Life ins company dont like to have all this oversight, they just want to sit back and

let the money roll committment K between borrower and lender

I agree to make you a loan on such and such terms You agree to borrow the money on such and such terms

do you have an agreement or an agreement to agree? have to realize that its specific enough

loan application we are sending you and application form, fill it out with borrower,

guarantor for non-recourse carveout if you want amortized over 20, paid back over 10 accept commitment

Lender can say well lend on these terms

then borrower can accepts borrower can sy this this this this and this BUT

most JD req com to be in writing letter is important


17/60

sets forth the conditions duty to negotiate in good faith

terms and conditions not specifically covered in the comm letter longer term between time in signing comm letter and closing

more reasons to incentivize the search for a reason to get out of the letter

Interest rates debt-coverage ratio based on rents paid

we expect the project to be showing X especially if nonrecourse

can say subject to no changing in the financial status of the borrower and nomaterial change to the financial change of the tenant

int rates drop client says -- whats my exposure? read the letter --

probably required them to put down a deposit if this loan doesnt close due to breach of borrow

depos -- deemed liqui dam, lose it could say -- to secure the lender against the damages they suffer

could be good could be bad dont auto lose the depo and they may not have any loses based

on my defaulting could be damaged more

they lend at .06, nonrecourse - they dont have any promise i was gonnapay

but they have a prepayment premium entitled to difference of .06 over life of loan and what youd expect to

return on govt securities you say, thats fine, you could have reinvested that money in other areas at around 5

we werent under loan, that term doesnt apply deposits may cover due dili, lender wants to do it and control it

failure of conditon of loan DCR

a tenant blows out and you dont cover it not a breach by the borrower, theres just a breach of the comm becomes really important to nego committment letter

Problem --150k sqft * .95 *18.5 = revenue of X 236350150K * 5.75 * =862.5debt service of

x-opp-debt service = cash flow 925.50


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4 million of equity.9255/4 = 23% ROE cash flow /Equity

NOI = X-y rev-expense

1773750/12.5 =14. something cap rate (really high)

NOI / Cost -- cap rate

taxable income -- rev - expense - (680 in int, 8.5 in *.08) (11MM (can only depreciate thebuilding, not the dirt)/39)

500 * .9 * x = rev

500*1.25 =

NOI 1.85M/cap rate=13.3

if cap rate fo rhte office building is good cap rate for investment in RE today, all we care about ismoney were comparing NOI to NOI and thats what we think money ought to cost

highlights what deficiencies there are and the complexities accosicates with doing an incomeanalysis like this

says only currently opp expenses and current income are is what matters whats going to happen to rev and whats going to happen to expenses over a period of

time

things that can go wrong with commitments DCR

changes in opp expenses can have it where the tenant picks up changes in opp after the lease

starts butyou still pick up original cost comm may say, well loan up to X, but not to exceed Y percentage of appraised value

options for that: mezzanine loan

secured by an interest inthe borrower but not an interest in the property somewhere betweent - lender says heres what Ill do, Ill loan you 1MM, but for

collateral ill take security interest in ownership interest int he borrower if you dont pay me back, ill step into your shoes and Ill have the 7 million

dollar loan what people liek

1st mort lender they dont have a second mort holder looking to be first mezzanine likes it b/c they just get to step in


19/60

they dont have to finance the prop as part of the foreclosure, they just step in and keep on being the borrower

increase the value of the prop master lease the space that isnt already leased

appraiser comes back and says youve got .4 vacancy so I can only value

it at 10 instead of 12 borrower can say ill master lease that .4 and pay rent on it, you can count

what ill pay for rent as part of the full recourse to the borrower and potentially to the members of the

borrowers as im able to rent it to third parties i get excused

mezz finance is pretty expensive

elements in the loan comittment lender friendly 360 days in a year in bank year 30 days in a month

talking about a balloon payment at some point/term didnt amortize fully over the term

critical point prepayment

prepayment restriction cant until x date if at all

then if you do, youll tack on x percent how is the fee calculated?

old fashion 10 year loan, cant reapay during first 5 years

6 year -- 5% 7 year-- 4% 8 Year -- 3%, etc until last 90 days you can prepay at par

yield maintenance fee i should be entitled to invest in a lot safer i want to pretend that if you pay me off, im going to invest that in Tbills of

a comparable material should i have to pay a prepayment fee under any circumstnace

condemnation or eminent domain im not going to have a make a prepayment premium if I didnt

chose to pay off the loan no prepayment from a casualty loss (it burns down and you dont

rebuild) baloon payment, 10 year term, 20 year amortization

client knew it was coming but refi hadnt moved as swiftly as they thought in the example -- you owe .04 of TOTAL amount OWED


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want to go back to lender and say its ok, but say it shouldnt applyto a payment due on maturity, if you accelorate it, i dont want theburden of knowing ive got that ontop of it

if you miss a payment and lender puts you in default accelerate full balance due

interest rate goes from 7 to 12 default rate

borrower is going to have to indemnify the lender from any environmental problem i made you a non-recourse loan on an asset with no enviro problems if there is an enviro problem, i expect you to have it i cant really insure this risk

escrows by the first of the month you gotta get your shit in for taxes, and insurance

premiums and stuff 2.04

getting financial papers in in 90 days is pretty quick questions

do you have FS that are prepared within 90 days of the end of the year? never want to be in a positiont where you technically in default with your

lender def dont want it to effect other obligations

corp finance obligations promise them that theyre not in default of any obligation say inexcess of

15MM dont wanna have this 15mm dollar loan b/c you didnt get your FS in on

time, and then youre in default on your 500MM corp finance loan

mr lender, do you realy need FS n the borrower at this point? if this is a nonrecourse, except for the carveouts (enviro, etc) do you really needit?

doesnt call for AUDITED financials though theyre willing to accept just being prepped for the borrower auditing is a significant expense

fraud, breach of trust, misrep etc carve out misapplication of funds by borrower

if there is a bond or obligation out there that you failed to meet and we have the right toenforce it, just b/c the loan is non-recourse, doesnt mean that we dont have the right toenforce it against you

prepay rent cant go and say, prepay rent tenant and Ill give you .2 discount

owner defaults and peaces out they can come after you for that b/c those monies should have come to

pay the loan first cant get back extra rent, revenues inexcess of payments


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like rev that was i excess of meating and paying costs for theperiod

recover damages for fraud, breach of trust, recover loan proceeds to the exten they havebeen misappropriated

basically saying ican come after you for the exten that I have been damaged for

your failure bad boy carveout

DOESNT say that the loan becomes fully recourse have two levels today

if you take rents you shouldnt take i can come after you for the rents youshouldnt take

what I dont want the lender to be able to do is say if you take somethingyou shouldnt have taken, the loan goes from nonrecourse to full recourse

econon risk for borrower becomes loan, not just equity if you pull your equity out -- can trigger a recourse

due on transfer clause Garn-St. Germain says you have to enforce courts pre payment fee on due on transfer clause? probably can

a lot of lenders are favorable to a 1 time right to transfer under certain conditions well negotiated will probably be about a .01 .015 fee, plus administrative fees

banks providing shorter-term perm financing, banks are willing to say ok to prepay if yourepaying from out-of-pocket from operations

cant go out and get another loan probably wont enforce the prepayment if its a bonafide sale -- will probably and can

require paymentneed to make sure your clients understand this and theyre ok with it and have thought about it questions -- is this going to be compatible with what you have planned/forsee over the

next 10-15 years

construction i wanna know what kinda building its gonna be

i wanna know the arch has complied with the code, zoning

article 4 insurance

interesting prob for atty cant let your client sign a loan comm that reqs a certain type of insurance coverage

without someone reading who understands the insurance game flood insurance if any poriton is located w/in 100 year flood zone

easy discussion to have when negotiating comm letter but much more difficult after signed comm

all risk insurance


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23/60

8 condition precedent to disbursement

built first lien banks lawyers have to sign off

probably a commercial reasonables standard imposed withrespect to this

most lawyers will go through and sprinkle in reasonable language financing statements

securing personalty on the prop k

borrower shall have reimbursed all expenses fees.. described in 11 The Borrower shall have reimbursed, or shall have made

arrangements satisfactory to Ace for the reimbursement of, allexpenses, fees and charges of the nature described in Article 11of this Commitment which have been paid or incurred by Ace andthe Borrower shall have made arrangements satisfactory to Ace toassure that Ace will not be required to pay any further suchexpenses, fees, or charges.

paid by ace -- ace will not be reqd to pay any further expeses fees, costs what do you think it should reasonably cost for a lender to do this

transaction we understand were gonna be responsible, but we dont want to

right blank check to another law firm repping the lender who hasno incentive to keep cost fair

want to negotiate a cap

bank says -- a lot of that depends on you if you sign w/e we send you it really wont cost all thatmuch

why dont yall pick three lawfirms and well pick who you work with attys will look at and make a semi opinion

valid easements in place no enviro lien public access to property

who maintains them? prefer theyre maintained by govtal authority

no amterial adverse change in either borrower or property financing on prop sale of any int in prop

ace has right to hire special counsel to rep them

congress passed law-- lender have to hire the appraiser, and the appraise have to meet certainstandards


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25/60

i dont want to own it for the next 15 years i dont want to pay your exceleration wont you agree to allow me to transfer one time so long as their a qualified operator

this is nonrecourse, how much to you really care who I am?

transfers that you may want to do for a personal purpose LLC owns it, and the LLC is owned my H and W and they have 2 kids

who have now grown up in the hotel worked at the desk and stuff, now they want their kids to own a part of the

LLC that they own as drafted, the change in membership/stakes even triggers

cant I give ownership interests around banks pretty receptive, so long as controling ownnership of LLC

doesnt change death

from the lenders point of view if hes not around were not too keen about this loan

we will give you aperiod of time to come up with a new acceptablemember

probably have same situation with guarantors only have a claim against the estate of the decedent if the loan is in

default within 6 months of his death if you havent provided for a process in finding a substitute guarantor

int rates go from 5 to 15 percent, lender may be saying ive got a goodchance of getting rid of this terrible low loan int rate loan

second mortgages

bank cares b/c theres someone out there, a very interested party with the meansto find something wrong with the way they did this and to move from second tofirst in priority

well-funded adversary a borrower in default doesnt have the resources to figure out and fight

why I dont also, borrower has gotten their equity out, and they dont give a shit

lose the vested borrower that you had before 19.1

Restriction on foreign investor require borrower that they aret terrorists and stuff like that

20.01 brokers and finders fees borrowers will call these people and say, hey, im getting ready to buy x

some are 5, some are 10, some are somewhere between that what can you get me a loan for?

buy/sell - triparty


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bankll make construction loan perm lender will buy it out

assign it over con lender gonna want to be in privity with takedown

mortgages taxes

maryland, florida avoid it

borrower likes it for this mechanics lien questions

if the mortgage is put on the prop before any work is done priority of lien if bought should relate back to the time when it first goes down mechanics will be behind

optional-obligatory doctrine if mortgage loan advances merely optional, them mechanic has priority

over prior in time leins if its a new loan,

bank is going to req that you make the lien go away before they lend how to make a lender how so theyll close the loan

property complies with land use requirements show us a building permit well what if i dont have it yet, and Im trying to get it but i want to get

started show me a grading permit so that we can close and well dispurse funds

necessary for grading provided that you ahve an arch that tells us weve turned in plans

and they should be substantially approved whenever they get

around to it why would lender take the risk?

trying to get the loan tomorrow -- weather is so nice now, we can do a lotof site work from now till thanksgiving iif we dont get site work now, itsnovember, we need to get it done till april/may before we can finish it up

going to deliver this building a lot later than we thought oh btw our tennat says we need to be in on time

enviro permits of one kind or another wastewater industrial pharma plant

does the local wastewater treatment plant allow that kind of dumping?

ACoE permits? JD wetlands, 404 dredge and fill

erosion control/Storm water runoff typically not gonna get a grading permit without this though

air quality


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how do you know that once completed it still complies? Cert of Occu

practical problem most dont retain them for an extended period of times

lucky if you can find one thats over 5 years old

if youre buying an existing one, youre probably not goingto find one absent a property owner who has kept recordsof all such things

on the other hand, had they not gotten one this buildingwould not have been occupied if they didnt have one

mistaken issued -- govt not bound by it if somebody missed that the building was out of

compliance with sidage setback fact that youve got a cert of occu doenst mean the govt

has waived that lenders will be looking for some type of site assessment to be done

phase ones and phase 2s astm standards

enviro engineers 1 -- recognized enviromental conditions (RECs)

inspection of review of historical data, review of enviro

history of spills, or something kept here typically not very invasive

if there are RECs recommend pahse 2

invasive testing typically follows to determine the extent how do you know intended use and such will comply ask the city

city is reluctant to say hey you can do this only to find out that theymissed something

not that theyd be bound, but thered be repercussions use to be -- take down an as built survey, can you tell me that what im

showing you complies with and I can get a letter for that smaller jd, you can prob get a better letter

title insurance -- zoning endorsement insuring that the ordinances will allow ALTA

american land title asc 2 endorsements

one called 3.0 prop is zoned for xyz and it allows these uses thats about all it says

3.1 with parking


28/60

improvemtns as constructed comply with zoningand the uses

title insurance comp is gonna want to see w/e letter youve gotten, gonnawanna see the zoning report (from a private company that did research),gonna wanna see certificates

most lenders are pleased that if you can give them a 3.1 theyre allgood

life insurane comp doesnt care about finding it out they just need to hear that its fine

title company insurance company -- they can lay it off

if they do it, it means they get to write the policy at a premium plusthe zoning prem

title insurance company is confident ithat it can deal with claims if it turns out not to be true, it has to cause a loss as it relates to lender, if the lender gets paid back, the title

insurance doenst get dragged into it even if there is a zoning issue title insurance company

will look at survey take a look at pages 204-5

description from a survey IDd a beginning point from a known monument

intersection of a street by calling sombody elses property line, youre calling to a monument dont leave any gaps between it b/c you go to the line

cord bearing, distance between two points straight line intersecting the curve

arc line page 204 -- lines go in two directions same line same angle on that compass bearing n/w and s/e calls are reversed b/c youre going in a direction Cert of Compli

lender is going to want insurance that they have a vlid first mortgage on the property owners policy lenders policy

specific execptions, nothign general or vague simultaneous issued in NC, pay for both in one

policy will describe the property insured insure marketable title

access doesnt

what specific endorsement would you want? enviromental lein endorsement

lenders say i dont want to even think about that teh change in interest rate will changethe validity or priority of my lein


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may want an endorsemtn aas to that dont want the int to change from 3 - 5and you havent recd that

dont want to lose priority as to those 200 BP future advance endorsement usury endorsement

says loan int rate and fees arent usurious may be looking for an oppinon from you, atty in trans, that loan isnt

usurious zoning endorsement comprehensive endorsement

usually always reqd in comercial comprehensive endorsemtn -- anything that would be sown by a survey restrictions on the prop

specific access endorsement yes the prop has access but what kidn/type prob cant get one that gives you the way you can get to that access

i have an auto shop, that has a light infront of it, cars going bothway can turn into lot

prb cant insure that city wont put up a median there or something utility availability

has util availably to it from publicly dedicated lines may see people ask for deletion of creditors rights

we insure youve got valid lien except

if there were inad consid on or determined fraudulent in BR court

we dont insure what happens in BR court we want you to take that out today its virtually impossible to get that exception removed they cant do the due diligence necessary

not going to give you a zoning endorsement cuz you call up and say id like one theyre going to expec you to provide things necessary on which they can base it zoning endorsements may or may not cost money usury endorsement typcially do

title insurance rates vary wildly based on JD florida, the rates are set statutorily

pay the premium once does not insure against claim that arise after the effective date does not protect against claims caused by its insured

got to get down and say, whats expected WHO ARE YOU REPPING?!

as a practical matter -- dont represent both parties in aclosing in a resi trans -- state bar says can rep seller and buyer as long as atty

doesnt perceive that a conflict is arrising


30/60

if you agree to close the loan youve agreed to follow the instructions doesnt mean you agree to represent the letter

if you havent agreed, you need to make sure people understand that youre nottheir lawyer if they think you are and youre not

lenders can require an insured closing letter

insureing the aty will follow the closing instructions of the lender FULL DISCLOSURE

case in the book -- what are white v. pinn talked about where you had the documents that lawyers had, thought they had

fully negotiated changed the prepayment penalty that he had not seen his client signed

what was the lawyers duty to pikc up on all the chagnes int he documents if youre going to send documents to people w/o telling them youve made

changes, you better make sure its a good one, b/c itll prob be your last what is the attys duty?

Atty wasnt liable, b/c client had been contributorily negligent in their failure topick up on the change

particularly interesting question with todays technology if youve got them both up there electronically

just read that shit the client who sued and didnt win, he sure as hell isnt closing any more of those

loans for the client -- opinion of borrowers counsel to lender

due execution and delivery the people who signed, were those authorized to do it and they were executed and delivered unconditionally

atty opinion as to did you review the doucments to make sure theyre a validentitydo you know who has to sign it watching people sign

might be comfortable with notary might know their signature

enforceability opinion enforceable as to their terms

i wanna know i ahve an enforceable power of sale assignment of rent personalty

excepting public policy, bankrupcy no matter what the loan says -- lenders gets amount of money necessary

to compensate them for their loss in the security. thats in the statutes basically just want the atty on the record that the borrower doesnt have anything

up his sleeve last two are the ones theyre really looking for remedies

are they adequate or customary to protect the lender?


31/60

are you aware of any claims or pending litigation against your client that would or couldaffect their ability to pay this loan?

conformity opinion do the loan documents conform to the committment?

where it gets hairy

multistate eliments your client is a LLC organized under North Dakota

you have to associate counsel to give you opinions from the JD that you needopinions from

knowledge when i want to say im not aware of any claims or pending litigation go through some trouble to define knowledge

atty may mean I dont know may mean ive asked around in my firm

what knowledge am I supposed to have if Im generally recognized as generalcounsel for the lcient and had knowledge of stuff

real question -- how to define the knowledge limit it as much as possible dont want to be constructively charged with someones knowledge that

didnt give it to you who signs opp letters?

practical issue who actualy signs the letter fairly common practice that letters to lenders like this are signed in the

name of the law firm and not the individual attorney firm committee -- to review and make sure that the shit theyre sending

out is up to snuff who has authority to sign are there loan transactions that take place where their are alternatives to interest

share of rev, gross revs in the profit I will loan you 10 mill, and youll pay int at .06

but if your project is highly successful, i want to share in it run the risk of becoming an equity investor and not a loan transaction

got a preferred return and then later you got a precentage returnbased on some other term

typically dont find institutional lenders willing to take that type of risk if youre willing to run the risk and not concerned about whether

your transaction is characterized as debt or not once you abandon the idea that youre making a loan, you have an open gambit

as far as investing concern as to recharacterization of transaction

ability to foreclose under the DoT? probably compromised youve got a 10MM mort 6 int, and if prop sells for more than 12MM you .5 of the

appreciation and youre not going to cancel your mort till you get that


32/60

were going to call it clogging the equity of redemption and its anuneforceable term

public policy dictates that ourts protect aganist agreemtns bywhich the mortgagor at time of the original loan transaction,surrenders the right to redeem the loan following defualt to avoid

loss of the mortgaged property Mortgagee must exercise its foreclosure rights to extinguinsh the

mortgagors right to redeem if its stays as a loan, your excess int (ownership position in the prop), could be

treated as interest interest and be in violation of the usury law

prepayment penalties common law -- loans were not prepayable

lenders POV if you pay me early, ive got to do something with that money that I

wouldnt otherwise had to have done bankers

1) will moan and groan about how nobody pays their loan back 2) will moan and groan about how everybody paid back early

all banks want is their interest NC -- unless loans specifically provide otherwise, statutes are prepayable

question becomes -- is there a restriction on a fee that can be charged for prepayment some caselaw that talks about -- its w/e parties who are knowledgeable and

capable of representing themselves in transactions agree to so long as they were capable of knowing what they were agreeing

some caselaw saying there has to be some reasonable relation between the

benefit of prepaying to the prepaying party and the detriment suffered by thelender some case law saying well enforce it if it doesnt shock the conscious

yield maintencance fee -- really the only thing used if you prepay, then we need to be able to take money that you prepay us and get

to the same benefits we ought to be able to reinvest in something very very safe and you make

up the difference you pay off the loan, then give me enough money now so that I can go

put that in T bills and by the end of the term ill have the same amount of money

you need to make up that difference in interest rate, and then give me thePV of what i would have been paid under the loan minus what youalready paid

loan doesnt get paid off - you defease the mortgage give a substitute investment like a present value of tbills thatll pay so that they

get the same money in the end when they were supposed to pay money


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34/60

things in front of construction loan mechanic liens, taxes etc payment bonds periodic lein waivers as they do work on the job

up to date

equitable lien that can be asserted while they might now have a lien right that would have priority over construction

lien on trust recorded before work had a property future adavance

HOWEVER may be certain circumstances that the person doing work, may be able to

assert lien rights with priority over that of the lender kter could engage in conduct that would give them an equitable right to

funds over construction lender call up construction lender, and were doing the elctrical work, but

im realy not excited about any more work if im not gonna get paid do you have money, am i gonna get paid

lender doesnt want to foreclose on a hotel w/o theelectrical work

and tells him of course youre going to get paid leaves out all that other shit about how theyre

worried about funding and that theyre thinking itsgoing to go bust

estopped from claiming priority we relied

lein on funds even if we didnt rely we did the work, your collateral is worth more after we did the

work if you foreclose on it without paying, youre unjustly enriched! equitable lien

con lenders start to want to be really involved dont want to advance money that didnt get done

have to be careful -- dont want to become partners with their borrower if anything starts to look like its not a debtor creditor relationship

borrower might start staying this is an equity investment if you do jump in, youre probably going to want to have a receiver appointed

holder of the mechanic lien isnt going to ahve a very good argument if the lender forecloses and brings less than theyve advanced

dont want to be there where does lender draw the line at invovlement

lender needs to ID the major Ks they need to complete the contract look at them, approve them


35/60

cost-plus, lender says, hey dont you think you could get a fixed cost of acost-plus with GMP

collateral assignment of those K if your borrower is in Default, were acceling the balance, were exercising

our collateral assignment in K, go to kter says treat us as owner,

complete this work in accordance with the K neogotiation that sometimes takes place

also whn trying to get lein waver, lein sub im fine with my K being assign

but I still dont have to perform for you unles s Ive been paid. lender says blow it out your ass

ive been amking disbursements, and if the person youve beencontracting with and spending it on something else, thats the risk youvetaken and you take

you could have put in your claim of lien on funds and then itll be myproblem

compromise you tell us when you havent been paid on time, even though we have

accelled the loan, w/in 30 days of being owed and we agree if we cant get it paid in x days, well pay it

were NOT going to allow you, however, when I come over and say giveme this and that and you say pay me for the last 6 months, you can go tohell on that

LoC Bonds diligent about how you disburse funds

getting a pay application and well pay it, but we need a lein waiver

how can we use financing ti generate additional cash for borrower refis or secondary financing why want to refi?

lower int rate in order to provide more capital for the project

building or prop doing really really well I would like to be able to take that cashflow and go to another lender saying I will

loan you a lot more money b/c I like how much money your property is making reschedule the obligations you have under the loan financing is tax-free

at one level, some people look at refis as a tax free way to sell property if they foreclose and take the hotel, youre gonna owe taxes

even if you dont get any money COD income

still do get the time portion of the value of that money for free


36/60

what if you cant refi the first? prepayment fees or foreclosed to prepay

blended cost of having a second and a first mortgage may be less that refi-ying even if you have a low first mort

you still need money, vis-a-vis money owned on first mort your second rate is always going to be higher but, higher rates on 200k is

probably gonna be less than 5-6MM refi moving from 6-8 prohibitions on encumbrances, due on encumbrance?

go talk to the first why would they let you?

they may know you really need the money youre about to get a new tennant but need to put some money in to

make some changes lender maysay im delighted to let you get some money and put it into

the property and bring in a new tenant well need consent for second or messanine financing typically

INTER-CREDITOR AGREEMENT if youre the holder of the 2nd you want some things from the 1st

if theres ever default, I want notice additionally, would you give me an opportunity to cure for them

10MM first, 1MM second i want to know if hes defaulted on a 60k payment, im

inclined to pay 60k to keep the loan from defaulting thenhaving to go bid a the sale to protect my position

also gives me a chance to foreclose

i can assure you that Ive got a provision that says if yourein defualt on the first, youre in defualt with us lender -- you should let me, foreclosure doesnt hurt you,

you end up with a better borrower Lender says -- why should I give you better deal

than the borrower? well, lender how much do you want a second

2nd -- I dnt want their to be any changes unde the 1st that I dont consent to i dont wan the int rate to go up w/o my consent

i agreed to be behind a 5 not a 7 may cover the 5, and get my money back, if borrower has to pay

back 7 i may be sol unlikely that the 1st will blanketly agree

but the second can have an agreement with the borrower not tomake a change

1st might agree to a list of things they wont change bu tthat depends upon the facts and circumstnaces


37/60

2nd might want to have a right to purchase the first loan in the event of tehdefault

mess finance secured by int in the borrower youd probably have similar concerns

cross defualt, notice of defualt, etc

subordinated Purchase Money loan seller-financing

you agree to take back a note secured by a mortgaged typicall this is what they mean in the RE arena

seller financing their own prop or any loan that secures the purchase of property

bank account pays .025 cd pays 1-2

ill pay you 6, 7, 8 its a better investment for you

accountant tells them you can sell it, sell it for 100k an acre but you dont have to pay for it until you get it when you get paid its capital gains, except for interest, thats regular income installment sale reporting

if i gotta pay ordinary income on the int why dont we up the price from 100k/ acre to 125/ acre irs is going to say, we dont believe there are zero percent loans

either theres a gift going on OR some portion is interest imputed interest different rates for diff maturities and loan

cash down MAKE SURE YOU HAVE IT incase you have to forclose when it gets rezoned for this fabulous mixed use the tax rates are going to go

way iup and the county tax assessor will be wanting his money, regardless who

owns it has he told you how hes gonna finance these imrovements

says hes getting a loan from BBT mr. reed is the regional vice

and he said theyre excited did anybody mention anything about you subordinating your interest

so youre not going to have a first mortgage loan youre gonna have a second well lets talk about PM mort


38/60

in NC, theyre by law NR 45-21.38 in event of default you can only foreclose

youre behind the bank and then you have foreclose, withthe rezone and higher tax, and the mortgage in favor of

BBT for the amount he owes very difficult for an layman seller of prop to takeback subornated PM

financing on a basis that makes any sense youve really got to know what youre doing

have done it though mr. developer will pay 2MM and 1MM down

were already tickled to sell it for a million if we dont get the second M its not the end of the world, not a big

deal, windfall if we do maybe not take back a subordinated interest but take back a first

priority mort on a smaller chunk of the property dont want to sell him the front part of the property and lose all your access to the

balance to your property on which you hold your mortgage. need you to release the RoW so i can build access

gotta give an easement for the sewer line if youre banking on the BBT loan to enjhance the value of hte prop you have the

subd loan on you need to make sure that the money the disburse gets spent onimprovement

you also need to know how theyre planning on paying them back what is the bbt release

they should have money left over to pay us

theyd just have to know way too much and be way too involved And I dont want to babysit them. judgment lien can jump infront of a refi in priority

gotta get in there to the judgment/clerk index inchoate marital interest

gotta get the spouse to relase her interest otherwise she could disavow the will and take her spouses share

seller financed doesnt req the signing for thisotherwayus to pull out money

credit tenant lease financing-- Bond Lease sale-leaseback here, company with excellent credit can do it internally or find a third party that likes to own prop

i want to take all my retail stores and convey them to mr. x for such andsuch a price

Im gonna give you back a lease where Im going to continue to leasethose property for $x/ft

completely net basis lease


39/60

responsible for everything i expect to be paid at a really really low cap rate for those rents, b/c im no credit

risk i have essentially sold the prop but havent given up possession or responsibility

but Ive cashed out

the buyers call up and say have I got a deal for you IBM has guaranteed to me that theyre gonna lease for x years can I get a loan from you, to buy

oh, btw, youll have a lien loan isnt being made on basis of what the prop is worth

its being made on the credit of the company going to lease from a balance sheet perspective, theyve got all that debt off their books, except for the

one year lease basically taking a RE loan, but making it not a RE loan, but based on the credit of

hte comp thats there for this to work --

cant be any repurchase rights for a nominal amount misused term

net, triple net, quad net trip -- taxes, insurances, maintenance

what does maintenance mean? changing lightbulbs, unclogging toilets or changing roof

net lease -- net as to what? bond lease -- net as net can be

LL has NO responsibility, tenant has it all

we want all the responsibility to be where the credit isd nothing excuses the tenant from paying rent tenants responsbility to do everything, -- have the insurance,

rebuild the building, etc synthetic lease

captive company of their own establish a lease, the terms of which, will be treated as a capital lease

as if they own the property and they can deduct depreciation and takeadvantages of ownership

captial lease for IRS pruposes but treat it as an opperating lease for accounting prupose

(bond lease is opp on both irs and accounting leases) limit on how much rent and discounted options to repurchase

if the rents are really and you have a nominal fee at the end to buy you own the damn thing

you dont have to show the liability for the loan or the asset on your companysbalance sheet


40/60

have to have the company with the appropriate credit to provide a loan and theloanll be repaid with the lease

for financial accounting purposes (under pre-2003 U.S. financial accounting rules), the asset isowned by a special-purpose entity and leased to the operating company under an operating lease.The special -purpose entity is usually owned by the lessee / operating company, and is given justenough independence so that it can be taken off the operating company's balance sheet. The assetis thus recorded as an asset on the balance sheet of the special purpose entity, not of the lessee /operating company. Thus, depreciation of the asset need not be charged against income of theoperating company. Instead, the lease payments are recorded as an expense on the incomestatement.

for tax purposes, the asset is owned by the operating company (or the special-purpose entity isconsolidated with the operating company, so that the two are treated as a single entity for taxaccounting purposes). Thus, the operating company can deduct depreciation of the asset for taxpurposes, generally on an accelerated depreciation schedule.

alternative methods of getting cash

tax benefit financing bond financing

govt entitles wiling to issue bonds to a lender who will then make a loan asdirected under the bond program

if I want to build a industyr in halifax county the govt may issues bonds to go to raymond james, well give you a bond tax-exempt financing

essenitally, only bond payments are made so when they get their interest theyre not taxed on it

obvi govt cant issue bonds for anything has to be w/in the confines of their governning documents

city charter/county/states what can they encumber themselves in

IRS says, we arent gonna let you finance willy nilly anything you want tounless we think its a qualified public project

keeps getting a little shorter at one time you finance a sports arena

no longer can get a tax exempt bond financing for this typeof project

certain govt entitles can borrow money at a lower int rate

NC board of nursing recently built new HQ -- financed with tax exempted financing

interest isnt taxed, so they got really favorable rates project that qualify for tax credits

estabed largely by fed govt if you build certain types of things we want to have -- we will issue you tax

credits based on a formula and your investment rural development
http://en.wikipedia.org/wiki/Special_purpose_entityhttp://en.wikipedia.org/wiki/Special_purpose_entityhttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Expensehttp://en.wikipedia.org/wiki/Expensehttp://en.wikipedia.org/wiki/Special_purpose_entityhttp://en.wikipedia.org/wiki/Special_purpose_entityhttp://en.wikipedia.org/wiki/Special_purpose_entityhttp://en.wikipedia.org/wiki/Special_purpose_entityhttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Expense


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farmings homing certain people who need housing assistance

rental assistance too if you rent to the people you say youre going ot rent to, well help

subsidize them

when things start to go wrong from lenders view

when we dont get paid, or when we thinkg we might not getting paid understanding when we think were at risk f not being paid

we start worrying about our collateral here who is our lender worried when we drive by and all the windows are busted out or when the

insurance calls and say you didnt pay are we comfortable that the borrower really cares enough, or can care enough about our

collateral lenders look and say we need to take control of this before it gtes out of hand

always provisions that say lender can come and take possession to ensure theprotection of their collateral

nobody wants to do it once you do this, when you get around to suing your borrower

they said, i only recall there were 3 windows that were broken, fact thatyou fixed 50 doesnt mean shit to me, you made life so difficult for thetenants they moved out

seek to have a receiver court appointed person to take possession of prop

can seek it exparte basis judge were the lender, mortgage, dependant upon the collateral havingvalue

they wont fix the broken windows, turing into a drug dealing spot we want you to appoint x, professional management comp, as receiver

this is an equitable remedy not entitled to as a matter of law

it will be very very helpful that your loan documents allow for oneto be appointed, but the courts arent reqd to appoint

may want to call the guy typically, putting evi, even in affidavit form, in front of judge, theyre gonna say

fine who do you want to be the receiver probably will ask you to appoint a bond to secure the performance of the

receiver can typically take control of prop

including accounts related to the running of prop


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judgell say i wanna hearing in the next 10 days, notice given to borrower, to seeif this receiver will stay and if the bond is enough

receiver works for the court, it does not work for the lender reqd to file reports

typically gets courts to confirm/ratify decision its made on a

periodic basis lender has not taken possession of property

it was an offfical of the court receiver has no liabilities beyond conducting its receivership duties

assignment of leases and rents always in the loan documents

notice to tenant that borrower agreed and youre now exercising that if you dont pay us, youll be in default under the lease

sometimes this wakes the borrower up cant we work something out

can we go interest only for a little while? mod that int instead of 6 is 3 for the next year but well still accrue the only 3, add

it to the balance, and then reamortize couple of things to think about

lender -- i dont want any agreement thats going to adversely effect my lienpossition on the prop

dont want to jeopardize my ability to collect on the loan for anyone whoseresponsible for it

lender if youve got guarantors, dont want to mod th eloans without the written

consent of the guarantor that the mod doesnt effect their responsibility to

repay .35 drop in prop values from 06 yo 09, wouldnt you feel like you gotshitted on if they extended out principal, lost value in the land and nowyoure really on the hook

even if loan documents say you dont need their approval practical matter, people arent going to be too happy, the trial court is

saying, the govt bailed you out, bout time you start bailing some other people out

guartor may say, sorry man, cant do it lender has some options he may in this situations, say were foreclosing

lien priority if youre gonna mod the note and the mort agrement

a lot of people concerned if you walk into a clerks if you want the title ins still to be good

youre gonna need to file a new DoT legal answer


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if the mod you do doesnt increase the amount secured or increase the liabilityofht eborrower

the DoT still secures an indebtedness as evidenced by the note as it maybe modified

also hard for a Jr LH to say, you lowering your interest rate really hurt me

however, if you go interest only, and Jr leinholder with judgment lein andsay the note you are foreclosing on was amended and modified and ithurt me

it was my understanding that the principle was to be paid down at aregular amount

the principle ought to be a lot lower if you had been tougher with him there wouldnt be such a

large mortgage in front of me today dont find it very compelling but its not inaccurate

what need to do amend and mod note and DoT talk to your Title insurance

borrower says, can i just give it back to you? if its nonrecourse or even if its not

i dont have anything ill just give you a deed in lieu

principle of how mortgages work the principle is at the time you get the mort or DoT, particularly in a DoT state

title was transferred to the trustee, if you foreclose your title relates backto the date you got that DoT

perfect the title

if you take a deed in lieu youre buying at that time if there is an intervening lein, you take the title subject to that have to make sure that they dont file br in 90 days

could be taken as a preferential transfer cant pay on an antecedent debt

insider -- 1 year why ever take one?

probably can satisfy yourself that is unlikely theyll be filing especially if theyre single purpose single asset entity thats br remote

borrower what are the tax consequences deed in lieu has greater chance of income from forgiveness of indebtedness

CoD for homeowners -- there have been some recent acts passed for this to protect

them from CoD income terms need to be defined

are you giving the property in satsifaction of the indebtedness -- or is there adeficiency


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friendly foreclosure theres too much stuff we cant control too many interevening interests out there

were not comfortable buying the property has to be cafefule there is no collusion in the bidding process for the sale

you can agree to limit or not to seek a deficiency

dont want to agree about who can buy it at the sale bank has a buyer, but want to buy from fore so they get free and

clear so well bid it up to a certain price and let them take it

back to DiL dont want to take it in the name of the lender

set up an entity that can take title to it dont want to give up your mortgage until youre confident youve negotiated all the perils

that may happen afterwards if you take title in same name that the person whose the lender under the loan --

MERGER kicks in Doctrine, the lesser title held as benificiary of the DoT merges into title held by

the deed and the mortgage has merged into the deed and has been extinguishedby merger

make sure you take it in a separate entity if the BR sets aside the transfer, you can still foreclose after jumping

through the hoops reqd by the BR court if theres a JL that pops up afterwards, whoops you forgot about me, you still

forecloseForeclosure -- so you couldnt work it out

1 -- must accelerate

lable it due and payable documents should say loan can be acceled w.o notice internally even

typically, notice is sent youre in default, were accing as provided in the document

in NC were going to seek to enforce the provision of hte loan that provides atty

.15 of loan notice, and have to give borrower five days

once the loan is accellerated its due, all of it youve got to come up with all due under the note

two types judicial

file a lawsuit and one of the remedies you seek is the ability to forecloseto cause the prop to be sold to satisfy the indebtedness

if you want any party to be bound, you need to make them a party to thelawsuit

borrower, junior leinholders, the whole shebang


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lengthy process special proceeding -- power of sale

trustee -- file a notice of hearing before the Sup Court CLerk in countywhere prop located

certain parties specified in statue as to who is entitled to notice

record owner any party to whom you think youre goint to collect money

from after foreclosure deficiency

any party with a record interest have to get 10 days before the hearing

clerk was notice given and received is the party seeking to foreclosure the holder and owner of a note

and dot power of sale default

hearing is limited to those matters and legal defenses to those not equitable defenses need to file for an injunction and a hearing before a superior court

judge Dot cant waive statutoryily requirements, but it can highten the

responsibilities at least 20 days notice of hte Notice of Sale

in addition -- have to send notice to anyone whos requested notice for sale

stat requires a deposit of .05 10 days - upset bid period ttee --

after period, ttee conveys the prop after receiving hte money files final report of sale

got x money, disbursed money in this way files notice of foreclosure with Register of Deeds office

what can be different? in addition to right to appear at limited can file for injuctive releif file for appeal from findings of clerk

but judge here still constrained by the limited proceeding available defenses

fraud on the deed if lender acelled indebt cuz you didnt pay on time

if you can show the lender has routinely been accepting late paymetns they waived and are now estopped

UNLESS


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notice given, saying were stopping this late payment nonsense all contract

marshalling -- equitable require the lender to foreclose on some other prop if im a jr. leinholder

if the lender has two tracts one with my jr. lein and one without my junior lein

its inequitable for them to foreclose on this first reverse order of alienation -- equitable

i buy one of the lots and it didnt get released from mortgage forclose on the other lots first

foreclose first on the lots that were sold first deficiency

have to be brought w/in one year of foreclosure .38 PM, .36

in credit bid borrower can contend that the lender didnt bid th FMV of prop deficiency shouldnt be this big

guarantors cant ue theory -- you find someone else to bid more, or you go bid it in

lender has to be the one to bid the prop in fact that they let it fly to someone else for less than fmv doesnt matter its about preventing a windfall to the bank

got to doyour due diligence before you get ot the sale

at the sale bidding at a foreclosure for 2nd mortgage, and theres a first mort of 1MM

1.2MM is what you think prop is worth dont bid more than .2MM

wrap around indicates that its for an amount equal to first and second

but when you bid in youre only bidding in on the second the portion of that wrap, which is in addition to the first

cali case never rely on implied warranties as to habitability fitness, zoning etc of

prop coming out of foreclosure sale only in cali

hopefully your lender client did their due diligence when they made the loan exception -- has the prop been tainted since they made the loan on the property enviromental contamination

needs to do due dili bout this lenders typically take title in the name of a diff entity than the actual bank itself


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dragnet on the first ought to be able to get the holder of the second can get a statement of

whats owed on the first midwestern

states have 1 year redemption periods

cant waive your right to it how do you ever know

youve got good title if the dude can swoop on in installment land/contract for deed

where the guy misses a payment, can the guy just say youre not missing your payment anymore

doubtful that if they miss one payment and have made the previous 20 2010 gs47g

regulates contracts for deed it sets out stat framework for how the Ks can be enforced

intended to provide consumer protectionif you have the facts, argue the facts, dont hjave the facts argue the law, dont have thelaw,argue the constitution

no consitutional issue with judicial process providing for foreclosure process so long as it has the lawsuit reqts and there was notice and service to all those

people power of sale foreclosures are a little more challenging

right to receive notice and right to have a hearing procedural due process

determining factor

Whether or not there

Documents

Real Estate Finance and Transactions