Board Topic: Apartment Building Finance
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Apartment Building Finance

Posted by: BJ Apr 24 2004, 12:40 PM
unsure.gif Hi, this forum is great! I'm a mortgage broker and I have a buyer that is trying to acquire two 5+ unit apartment buildings. The buyer needs max cash out.The seller is only seeking to have the existing balances of the loans paid, which are both about $90 to $95k. Both buildings appraised @ $125k three years ago. The seller is willing to Quit Claim the properties to the buyer and then the buyer wants to refinance to pay off the previous loans. Would that cause a title seasoning problem? If not, are there any lenders that will go above 80%LTV? If we take the 80% loan, how can the additional equity be accessed? Commercial 2nd or Line of credit? Where are those loans available? I mainly close residential loans so this is a new loan to me. Thanks in advance for any comments. biggrin.gif

Posted by: loanuniverse Apr 24 2004, 02:39 PM
BJ:

There are several things that come to mind when reading your post. First let me try to address your questions and then give you my feedback.

The seller is willing to Quit Claim the properties to the buyer and then the buyer wants to refinance to pay off the previous loans. Would that cause a title seasoning problem? I am going to be honest here. If someone approached a mainstream lender with something like this, there are a couple of red flags there that scream ”flip”. I am not saying that flipping is necessarily evil, it is just that a mainstream lender such as a commercial bank should not be in the business of financing transactions that have an inherently higher risk. Let me point out what raises the flags:

The buyer needs max cash out…. why?

The seller is only seeking to have the existing balances of the loans paid, …. Both buildings appraised @ $125k three years ago…. someone is willing to sell at less than market value {assuming that the properties have been maintained and that the neighborhood has not deteriorated} why?

The seller is willing to Quit Claim the properties to the buyer and then the buyer wants to refinance to pay off the previous loans. Why not a straight sale?

To get back to your questions about seasoning problems, well yes it would from the point of view that title has been transferred before the seller has gotten paid. This is very unusual and would make a lender think about it. On the other hand, if you can get past that and the properties cash flow as well as appraise high enough this might not be a problem.

are there any lenders that will go above 80%LTV?
Yes, but probably not mainstream. They might require a blanket mortgage on another property. They might not be willing to do this loan because it is too small. Their fees and pricing might not be as reasonable as a mainstream lender’s are. Your client might end up paying a much higher pricing for just an additional 10% or $25,000 .

If we take the 80% loan, how can the additional equity be accessed? Commercial 2nd or Line of credit?
The real answer is that you might not be able to. Lets say that your new appraisals come in at $250,000 combined. The senior lender gives a $200,000 loan on the properties. Chances are that by the time the junior position lender needs to foreclose, he will have to cut a check to the first one for more than $200,000 in order to get the property. I am not even counting attorney’s fees and other fees. That is the reason why mainstream lenders are not collateral lenders. It is all about repayment.

Where are those loans available?
For high loan-to-value, my first choice would be one of those internet companies. Some of them work with brokers. I do not refer to any specific company. By the way some of them work with brokers. However, the small amount involved might be a problem.

Good luck and hope this helps.

Posted by: BJ Apr 26 2004, 09:11 AM
biggrin.gif Thanks, all of the info is very helpful. It sounded like a wierd loan to me too, and now I know what additional questions to ask the buyer. Thanks alot!
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