Environmental insurance for the lender

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Lenders polocy
Posted by: Ross Pettid Jul 15 2004, 05:05 PM
Hi, I am looking to buy a existing loan on a gas station at a discount to increase my yeilds. My problem is I can’t seem to find anyone who writes lenders polocies against the note. CNA droped providing insurance on gas stations. Any help. ross@stonefunding.com or 314 739 5594 or post a reply. Thanks, Ross
Posted by: loanuniverse Jul 15 2004, 06:37 PM

So you bought an existing note and you are looking for insurance against default? Interesting!

This part of the business “secondary market” is unknown to me. I did not even know that you could insure your portfolio that way.

You are not talking about regular property insurance, are you? I mean the only way that the lender would need to get that insurance is if the borrower failed to maintain it as in forceplace insurance.

I wonder what kind of premiums are we talking about here for regular income producing property loans?
Posted by: rosspettid Jul 16 2004, 02:57 PM
I have not bought the note yet.
I wanted to make sure I could get insurace before I did anything with it.
Here is the type of insurance I was talking about.
It’s an environmental insurance for the lender. Should the payor not pay and cleanup the environmental problem. I talked to the insurance agency who wrote the article and the company who issues the insurance discontined the service now Im looking for another source.
the numbers on the note

15 year loan
.70 Ltv after discount
9.58 % yeild after discount
A Credit payor
probably could increase the Yeild to 14 to 16 %
because its a gas station

If there is a environmental contamination and or fines the note would be worth nothing. government fines take first lien position and cleanup I was told can add up to no more than a half a million dollars on a gas station. Thats what environmental insurance is for the lender.

Can you think
Posted by: loanuniverse Jul 16 2004, 03:42 PM
I got it now. Frankly, this is very foreign to me since my employers have always gone the route of performing “due diligence” on environmentally sensitive properties beforehand. So I talked to my boss about the situation and he remembered researching this a while back, and talking to someone from AIG about it. I did a quick internet search and found this site:


A couple of other thoughts that we came up during the conversation:

1 – He did this research a couple of years ago and the premium was substantial. Be ready to have your margin eaten away.

2- He reminded me about the fact that gas stations {at least those in our state} are mandated to change to double-wall tanks within 3-years. This would mean additional expense.

3- The fact that you get insurance does not mean that you can’t skip due diligence. There might be some liability there if you don’t require an environmental assessment. It has to do with being classified an “innocent purchaser”

Good luck on your search for a policy.
Posted by: The Fox Jul 16 2004, 04:23 PM

Those are a few hits I got by searching “environmental insurance commercial lenders” in Yahoo! Search.

I have to admit, I’ve never heard of this, but I am going to talk about it with the brass. Is this a relatively new insurance product?

A couple of questions for you. I suppose I should know this, but how could “A Credit payor probably could increase the Yeild to 14 to 16 %because its a gas station”? I guess I may not understand your side of the lending universe that well.

Posted by: rosspettid Jul 16 2004, 04:57 PM
I’ll reply more monday but the way I increase the yeild is to buy a note at a larger discount. An existing 70%Ltv 100,000 note 15 years 6% interest bought at $57,456.01 gives you a 16% yeild or bought at $66,695.28 gives a 13% yeild.
There is a great book that teaches the art of discounting cash flows.
Thanks, Ross
Posted by: loanuniverse Jul 16 2004, 05:29 PM
“…Is this a relatively new insurance product?…” Is not new, it is just that banks rarely use it because they do their due diligence before hand, and in the case that there is something bad environmentally wise the bank would just not foreclose on the property. I guess that in case of environmental problem this policy would payoff the loan. According to my boss the premiums that he got quoed from AIG were pretty high.

The buying of notes at a discount happens all the time. A few years ago, several banks in our area got invited to bid for pools of loans from a failed bank taken over by the RTC. You can really improve your yield buying those loans. My guess is that Ross does this either with his own money or private investors funds. In other words, he is the one really making money in our business smile.gif
Author: Commercial Loan Underwriter