Posted by Don McClain on August 07, 2005 at 18:48:34:
Great comments, Ray.
Assuming loan - Posted by Matt-AZ
Posted by Matt-AZ on August 02, 2005 at 21:28:04:
Hi All,
I am looking at a MHP That has a $1.4 mil. loan through GMAC. I am looking to do an assumpion and working with the seller for the difference on the $2.4 mil sales price.
My question is: Do lenders generally still require 15% to 20% from the new buyer on an assumption? Or are they more flexible on what they will allow the seller to carry?
I will hopefully be able to talk to the lender in a few days to see what we can work out.
Ray, would you also recommend sending the loan request form from your book, and/or a business plan along with the assumpion package? Thanks for your time everyone, I have learned a LOT from this site.
Matt
Re: Assuming loan - Posted by ray@lcorn
Posted by ray@lcorn on August 04, 2005 at 17:14:31:
Matt,
Depends… is this a CMBS (securitized) loan? Typical terms are 20-25 year am, ten-year call, often advertised as non-recourse, also known as a conduit loan. The reason I ask is because GMAC is a very active conduit lender, and these loans do not allow secondary financing from any source.
If you put the deal together with some cash down and perhaps secure the seller with another property, then they may go forward.
The assumption terms will be the same as the original underwriting criteria. They will review the deal and the borrower and say yes or no. If the borrower has a net worth of at least the loan amount, a measure of experience, and the loan has been trouble free, then they collect a fee (usually around 1%, sometimes capped at $10,000) and approve the deal.
If for any reason they are not comfortable with the new borrower, the performance of the original borrower, or the property, then the answer will be no, and perhaps with no reason given.
The hard part is getting someone on the phone that can talk about the loan and the assumption criteria.
ray
p.s. yes, you will need to prepare a complete loan package, and take special care with the borrower financial statement and background pieces.
Re: Assuming loan - Posted by Matt AZ
Posted by Matt AZ on August 04, 2005 at 20:55:43:
Thanks for your reply Ray,
You are correct, it is a conduit loan and they will not allow any secondary financing. I was finally able to talk to someone at GMAC yesterday.Oh well, it was worth a shot.
The seller is very flexible on terms, she just wants her price, which after looking at some of her books, is looking too high. She is still trying to find records for me, and until she does, I am using only the income numbers I have seen so far that can be proven. The park will take very little time to bring it up to full potential.
Ray, after running the numbers endlessly, I see why you say 100% financing is difficult to make work. I am talking to a few lenders though and the fact that the seller will allow almost anything, I will keep trying to make this work. Like a lot of people, I dont have a lot of cash to bring into this, although, I can probably get some.
I will keep you posted.
Matt
Re: Assuming conduit loan - Posted by ray@lcorn
Posted by ray@lcorn on August 07, 2005 at 14:29:08:
Matt,
Some times the only way to get a seller to get real about price is to say “call me if it doesn’t work out”.
Trying to make a deal work with 100% leverage is difficult at best, and foolhardy if you don’t have a very certain picture of the cash flow.
I neglected to mention that another option for assuming conduit loans is the use of mezzanine financing. The ownership interests (e.g. LLC memberships, LP shares, etc.) are used as security for the loan, rather than the property, which avoids violation of the no secondary financing covenant.
Mezz funds can be structured as debt or preferred equity. Loan amounts are based on the difference between the first mortgage amount and 80-90% of the purchase price. Depending on the deal, the borrower and the source, pricing ranges from 9%-14%, 1-3 pts origination. Amortization and call terms vary widely.
One last thought on dealing with conduit loans: If the loan is nearing the end of it’s term, say within one to three years of maturity, then it may be feasible to pay it off through a process known as defeasement. For more about how it works (and an excellent library of articles on the subject), see www.defeasewithease.com
ray
Re: Assuming conduit loan - Posted by Matt
Posted by Matt on August 08, 2005 at 16:23:51:
Thanks again for your time Ray,
It looks like assuming her loan is not going to work. The rate is higher than I wanted anyway. The problem I am having is getting accurate numbers. The seller kind of had this thing dumped on her, so she is doing the best she can.
We are also looking at the option of leasing the park with the option to buy. She would still have her income, and it would give me time to verify the income and expenses.
One more question. The park is on septic. What should I look for besides the standard septic inspection?
I’ll keep you posted.
Matt