Posted on September 2, 2010 by Davis Wright Tremaine

Seller financing - An Option That Requires Careful Review

Authored by:  Gene Grant and Monique Hawthorne

As published in The Daily Journal of Commerce

Real estate prices today are historically low because there are far fewer buyers than sellers. Foreclosures continue to flood the market with bargains. But people seeking to buy real estate during a severe recession often are unable to qualify for financing even though interest rates are enticingly low.

In such times, seller financing can be used to obtain a premium purchase price. Not only are the underwriting process and financing fees and costs avoided, but the seller often will finance a much higher percentage of the purchase price than would a typical mortgage lender. If and when interest rates increase, sellers can benefit by providing seller financing at a lower rate.

Seller financing has become something of a lost art. Following is a brief review of major issues that should be resolved carefully and that typically require the assistance of a real estate attorney.

 

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Posted on April 27, 2009 by Jayanne Hino

Keeping Costs Down On Land Survey

We recently met with some surveyors, who passed on the following tips for keeping costs down on land surveys:

 

  • In order for them to provide a realistic price quote, they need to see copies of the property title report, the prior survey (if you have it), and the lender's survey requirements (including the form of surveyor's certificate required by the lender).
  • Attached is a PDF of the 2005 minimum standards for an ALTA/ACSM survey.  The "Table A items" on pages 4 and 5 are the additional items that a surveyor can show on a survey.  Ask your surveyor to look at the list of Table A items required by your lender.  The following Table A items can significantly increase the cost of the survey:
    • Item #1:  Placing a monument (e.g., a marker or a pin) at every major corner on the property.  The surveyor must also file a record of survey with the County Recorder’s office at an additional cost of approximately $2000.
    • Item 5:  Showing the contours and the elevations of the property.  This is usually required only if development or construction on the land is involved.
    • Item 7(b)(2):  Calculating the gross floor area of all buildings on the property.  
    • Item 11(b):  Mapping the location of underground utilities.  See if your lender will accept Item 11(a) instead, in which the surveyor shows the location of utilities based on observed evidence on the surface.
  • Make sure the list of items your lender says it wants the surveyor to cover is consistent with the lender’s form of surveyor’s certificate.  The lender’s form of surveyor’s certificate often contains additional requirements, so the cost to you will increase if the surveyor has to go back and do additional work.
  • For projects with lots of acreage, one way to cut down on costs can be to have an aerial photogrammetry map done showing the location of interior buildings.  Traditional survey methods would then be used to establish the boundaries of the property and any features within 5 feet of the boundaries.  You should talk to your lender about whether this method is acceptable in lieu of a traditional ALTA/ACSM survey.

One other tip: surveyor contracts often contain a provision limiting their liability for any errors to the cost of the survey, which doesn’t provide much protection to you.  It’s worth asking the surveyor to delete that limitation before you sign the contract.

 

ALTA 2005 Standards (pdf)

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Posted on March 18, 2009 by Jayanne Hino

Keeping Your Real Estate Lender Happy: How to Increase Your Chances of Passing Those Periodic Property Inspections

If you have a commercial real estate loan, the loan documents probably give the lender the right to conduct periodic property inspections. And in today’s economy, lenders are taking a hard look at the collateral securing their loans. Loan documents often give lenders certain remedies if there are concerns about the property, such as allowing the lender to require or increase repair reserve payments, to increase financial reporting requirements, to require rents to be paid into a lockbox, to impose a default interest rate, and in certain cases even to call a default on the loan.

So where should you spend your hard earned maintenance dollars? In 2008, the Mortgage Bankers Association (MBA) issued a new commercial/multifamily real estate property inspection form for a variety of property types, such as Office, Retail, Multifamily, Healthcare, Lodging and Industrial. The inspection form has received industry-wide adoption by funding sources, including Fannie Mae and Freddie Mac (although apparently not by the Federal Housing Administration).

Property owners and management companies should review the inspection form and the reference guide to see how lenders will be evaluating their properties. The guide also provides a helpful overview of the inspection process, so you’ll know how to prepare for the inspection and what kinds of information the inspector will want from you.

 

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Posted on January 28, 2009 by Jayanne Hino

Changes in Freddie Mac Credit Requirements for Multifamily Mortgage Loans

Freddie Mac is revising its credit requirements for its multifamily mortgage loan programs effective as of February 2, 2009. Although the term sheets have not yet been updated on the Freddie Mac website, we have been told that the changes will include increasing the minimum debt coverage ratios and decreasing the maximum loan to value ratios on various types of loans. The Freddie Mac website states that “Loans under quote or under application with Freddie Mac prior to February 2, 2009 may be subject to the new credit parameters effective immediately at the discretion of Freddie Mac or the Seller/Servicer.” One source, however, suggests that there is a grandfathering policy for loans that are under application by February 1, 2009 and that meet certain other standards (e.g., if the loan closes by May 1, 2009 for Targeted Affordable Housing loans, and if the borrower rate locks or closes prior to March 2, 2009 for Conventional Loans). If you have applied for or are considering a Freddie Mac loan, check with your Freddie Mac regional adviser or your mortgage broker now to see what loan terms and conditions will apply.

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Posted on July 9, 2008 by Coni Rathbone

Real Estate Securities

In the challenging real estate market that the entire country is facing, many developers and real estate purchasers are looking for less conventional ways to finance their projects. Please see the link below to an article that describes several ways to finance projects with what I call "Real Estate Securities."

www.dwtrealestatelawnw.com/Portland Bus Journal 8-31-07.pdf

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Posted on July 9, 2008 by Coni Rathbone

Creative Structuring

If you are interested in learning creative ways to structure your transactions through the use of entities, you should read the article below:

www.dwtrealestatelawnw.com/Rathbone Article in PSBJ.pdf

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