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

BLE 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 -- race CLosing 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

package is the only way you can make it economically possible for a third party to 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 at settlement 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, bank collects 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 least equally 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 to foreclose 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 that they 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 payment of the same amount everymonth towards amortizing it, in order to do that, with int being paid in arrears (being paid for after youve had the use of it) mortgage insurance premium allowed to be charge on highrisk loan borrower who has a questionable past

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 an account that those two bills do not come due on the same day 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 the title 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

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 can understand 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 think this 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 the property well take title the property, you pay rent or w/e but stay on the land, then buy it back 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 wagon looses 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

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 lose the 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 Lended already 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 worth more 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 prop w/o giving them the opp to pay off what is due on the loan in order to get the 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 gonna have to pay me back if you want it to be secured by a mortgage, you have to figure out how to monitize 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 is sufficiently 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

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 have signed that restriction before selling you the prop I go buy a house, borrow money from BBT to buy the hosue, when I buy the house 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 this property 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, buys the 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

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 valid foreclosure 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 any other 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

when they search the beach -- theyre not going to be seeing a DoT 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 first filed

things that are not mortgages Mortgage substitutes ways people try to have something that acts like a mortgage but avoid the foreclosure process in many JD, you dont have a special proceed foreclosure infront of the clerk 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 money you 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 great disfavor if you went into court and challenged the title of the the person who title through this especially when there are things/documents evidencing both parities intentions and ideas about the transaction sale transaction/

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 paying hte 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 and get 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 was incapable 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

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 risk Market risk Lender 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 is youre 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 subjective opinon 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

well above what any house had been sold for thats how do you know if comparable sales youre seeing really reflect the market place or are they just a blip still a valid approach where you have willing buyers willing sellers and neither under a compulsion to buy other valuation methods Replacement costs I want to build this exact house in a comparable spot then adjust for age/use if i know what a new one costs, so i could replace it with a new one, what is this ones value in comparison to that problem alot of things -- you cant replace them arent a lot of lots there on east franklin street Income approach need a property taht generates income or that COULD generate income if could -- gonna have to be able to make some sort of realistic assumptions about what kind of income could be made arent gonna see it except in commercial context really TERMS Cash Flow take the revenue which is generated by the property (typically rents paid to occupy the property) subtracting the operating expense that the owner of hte property has to pay if you had a triple net /absolute net lease then you would have to subtract expense, but if he doesnt then subtract the debt service (principle and interest) possible to have a negative cash flow have to feed the property RE generally deals in annual numbers tennant is paying rent at 15/ft -- it means annually unless stated otherwise have to have annuallized NOI rents revenues - operating expenses ONLY does not take into account the debt service EBITDA earnings before int, tax, depreciation, amortization, principal payments on debt The theory is that it measures the cash earnings that can be used to pay interest
and repay the principal. Since interest is paid before income tax is calculated, the debtholder can ignore taxes. They are not interested in whether the business can

replace its assets when they wear out, therefore can ignore capital amortization and 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 on your equity investment youre getting that much money back on your equity -- are you making money? 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 before you 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 what other 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 to that I can start coming up with what the cap rate was with respect to those office 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

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 is more technically known as partial amortization.

100k sqft ffice .9 leased at 20/ft op expens at 6/ft gross rev at 1.8 mill op expenses -- 600k debt 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 rate cap rate Advantage One advantage of capitalization rate valuation is that it is separate from a "marketcomparables" approach to anappraisal (which compares 3 valuations: what other similar properties have sold for based on a comparison of physical, location and economic characteristics, 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, multiple approaches are generally preferred when valuing a real estate asset. Capitalization rates for similar properties, and particularly for "pure" income properties, are usually compared to ensure that estimated revenue is being properly valued. Depreciation taxes -- cost recovery

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

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 and value 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 down nonrecourse also 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

we know if things dont go the way we want them to, we can just dump the asset and 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 being prime+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 due diligence 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

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 no material 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 gonna pay 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 236350 150K * 5.75 * =862.5 debt service of x-opp-debt service = cash flow 925.50

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 the building, 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 is money 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 income analysis 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

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

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

want to go back to lender and say its ok, but say it shouldnt apply to a payment due on maturity, if you accelorate it, i dont want the burden 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 need it? 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 to enforce it, just b/c the loan is non-recourse, doesnt mean that we dont have the right to enforce 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

like rev that was i excess of meating and paying costs for the period recover damages for fraud, breach of trust, recover loan proceeds to the exten they have been 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 you shouldnt take what I dont want the lender to be able to do is say if you take something you 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 youre paying 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 payment need 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

replacement cost basis want to know that theres an insurance policy thats going to pay everything other than a pre-arranged deductible builders risk loss rent insurance which companies can you get insurance from? may be spelled out in the comm letter existing building would say -- heres the policy there already, does that comply? anything you can get negotiating the comm makes life a whole lot easier art 5 -- leases lender says ive got to have certain leases in place before i can make a loan have to have certain assurances/credit with/in the leases may req guaranty only way this loan is gonna get repaid is from the property itself hows that gonna happen -- the leases that are in place! estopple certificate from tennant certificate that says something of least thats attached to this is a true and accurate and there are no other agreements other than the obligations and terms and agreements enumerated therein eveything is fine under the lease, and its all correct Subordination tenants right under the lease are subordinant are to the lenders rights under the mortgage non disturbance tit for tat tennat gonna req that lender sign this saying so long as theyre complying with terms of the lease that thtey wont kick them out if they have to foreclose attornment acknowledgment of the existence of the relationship of landlord and tenant. A
tenant often has duty under the tenant's lease, particularly in commercial leases, to provide an attornment upon request, and is required by a creditor or potential buyer of property from the landlord to establish the nature of existing encumbrances on and income streams flowing from a property, as a element of the due diligence process associated with the transaction.

section 5 prohibition cant modify without consent of lender LL cant accept rents in advance of more than a month leasing commission not enforceable against anyone other than the person who agreed to it up unitl oct 1, law didnt allow liens to brokers for comissions 6 -survey 7- title insurance w/ respect to securing the validity and priority of their lien

8 condition precedent to disbursement built first lien banks lawyers have to sign off probably a commercial reasonables standard imposed with respect 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, all expenses, fees and charges of the nature described in Article 11 of this Commitment which have been paid or incurred by Ace and the Borrower shall have made arrangements satisfactory to Ace to assure that Ace will not be required to pay any further such expenses, 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 has no 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 that much 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 certain standards

lender reqs deposit from borrower, to act as security to ensure they can pay for people they hire in connection with the job if borrower bails application fee not really a deposit may be termed an application depo protects us against the diff fees early on tiered when you send us an app;lication send 15k non refund, its to pay them to review the app then expect a depo when you send the comm let back in to secure us b/c youve now said ok were doing this rate lock im making you a loan at 270 BP more than LIBOR were not locking the int rate in now pay a deposit at locking in point 12.03 retention on deposit shall not act as liquidated damages were not giving you an opt out this is not an option to retain a loan its not an option fee its not an contract to keep an offer open when you have substantial uncompleted space or building that need substantial capital expenditures coming up i want to escrow some reserves for replacement or repair of the roof due on transfer clause we are making a loan to you you cant transfer directly or indirectly without our consent and thatll be an event of default have to think with your client, are you going to be transfers that the lender ought to go ahead and ok? involuntary death condemned hotel -- runs in with due-on-encumbrance you know in the hotel that the sec int is in all the assets necessary not going to be interested in foreclosing on a hotel with no beds or tvs or w/e a lot of that stuff wears out before the loans does id love to sell the old stuff or at least give them away i dont want that to be an event of default id like to finance the news ones maybe

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 acceptable member 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 good chance 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 means to find something wrong with the way they did this and to move from second to first 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

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 lot of site work from now till thanksgiving iif we dont get site work now, its november, 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

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 going to find one absent a property owner who has kept records of all such things on the other hand, had they not gotten one this building would 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 they missed 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

improvemtns as constructed comply with zoning and the uses title insurance comp is gonna want to see w/e letter youve gotten, gonna wanna 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 all good 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 plus the 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 change the validity or priority of my lein

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 both way 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

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 not their 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 to pick 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 valid entitydo 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?

are you aware of any claims or pending litigation against your client that would or could affect 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 need opinions 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 general counsel 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 return based 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

were going to call it clogging the equity of redemption and its an uneforceable term public policy dictates that ourts protect aganist agreemtns by which 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 the lender 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 the PV of what i would have been paid under the loan minus what you already 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

Defeasance of a securitized commercial mortgage is a process in commercial real estate finance by which a borrower substitutes other income-producing collateral for a piece of real property to facilitate the removal (defeat) of an existing lien (entailment of the property) without paying-off (through a transfer of liquid assets) of the existing note. Generally, a basket of United States treasury obligations is the only collateral acceptable for this type of substitution

when you defease a loan, the note still exists it just doesnt attach to the property anymore nor do you have any obligatin to pay the loan know that the lender isnt getting any more money whereas under the prepay -- they say that money is going into Tbills but bullshit bankruptcy remote entitles you want to be a SPE to be the borrower idea they can confine their liability exposure to the entity that was entering into lenders also like SPE to be the borrower they want a guarantor for their nonrecourse carveout but other than that, theyre soleyly interested in their non recourse loan 506b BR court has authorityi to reduce fees and expenes with prepayment they have the equitable power to do that BR court dont exist soley to help borrowers theyre for the orderly administration of the estate of teh BR if im the lender making a NR loan secured by an office building ive got a borrower SPSAE (single purpose single asset) req that its a a BANKRUPTCY REMOTE entitly no other obligations to anyone else also have some other restrictions isolate the borrower, so that youre that borrowers only creditor here, the borrower cant be put into BR by himself (takes three creditors to involuntarily put them into it) BR court -- you need to reduce this fee NO YOU DONT -- its just me and the borrower, the only one who would benefit from that would be the borrower and he agreed to it give me the benefit of my bargain!

trying to do as borrower how bout letting me pick the title company OR if youre deadset on picking, will you capt the costs lenders are receptive to this get competitive bids secured by the prop?

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 the electrical 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 its going 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

cost-plus, lender says, hey dont you think you could get a fixed cost of a cost-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 been contracting with and spending it on something else, thats the risk youve taken and you take you could have put in your claim of lien on funds and then itll be my problem 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 give me this and that and you say pay me for the last 6 months, you can go to hell 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

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

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

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, with the 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 on improvement 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 this otherwayus 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 and such a price Im gonna give you back a lease where Im going to continue to lease those property for $x/ft completely net basis lease

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 take advantages 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 companys balance sheet

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

for financial accounting purposes (under pre-2003 U.S. financial accounting rules), the asset is owned 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 just enough independence so that it can be taken off the operating company's balance sheet. The asset is 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 the operating company. Instead, the lease payments are recorded as an expense on the income statement. for tax purposes, the asset is owned by the operating company (or the special-purpose entity is consolidated with the operating company, so that the two are treated as a single entity for tax accounting purposes). Thus, the operating company can deduct depreciation of the asset for tax purposes, 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 as directed 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 to unless 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 type of 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

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 the protection 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 that you fixed 50 doesnt mean shit to me, you made life so difficult for the tenants 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 having value 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 one to 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

judgell say i wanna hearing in the next 10 days, notice given to borrower, to see if 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 lien possition on the prop dont want to jeopardize my ability to collect on the loan for anyone whose responsible 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 got shitted on if they extended out principal, lost value in the land and now youre 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

if the mod you do doesnt increase the amount secured or increase the liability ofht eborrower the DoT still secures an indebtedness as evidenced by the note as it may be 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 and say the note you are foreclosing on was amended and modified and it hurt me it was my understanding that the principle was to be paid down at a regular 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 back to 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 a deficiency

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 extinguished by 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 foreclose Foreclosure -- 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 foreclose to 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 the lawsuit borrower, junior leinholders, the whole shebang

lengthy process special proceeding -- power of sale trustee -- file a notice of hearing before the Sup Court CLerk in county where 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

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

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 protection if 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 is state action involved in the power of sale have to follow the 14th amendment to make the 5th amendment applicable If there is sufficient state action involved, then the 14th amendment kicks in, state cant take away your federal rights Turner v. Blackburn there is state action b/c even then there was a hearing called for before the clerk of court before the foreclosure If no state involvement -- youve contracted, there is no constitutional protection it would be a purely private sale if you bought the property from somebody and they wont leave, can still go ask the sherriff tokick them out, thats not state involvement in the sale where have courts been willing to look and imply state action? courts were willing to extend themselves to find rights where they tought people were deprived of their rights that were not voluntary when you sign a mort and a DoT youve decided the terms

but were not going to let shoping centers deprive people b/c of their status ie jews cant shop here

interesting issue in NC NC stat doesnt req that notice of hearing be given to jr. leins on theproperty second mort, mechanics doesnt req that notice be given does provide that once foreclosure takes place that those interest will be cut off minnite bord of -- v. adams USSC prop taxing authority couldnt foreclose on prop tax lein w/o notifying holders of jr. morts of the foreclosure and that would cut them off prop tax - was a state action foreclosure thats not the same thing as what we do in NC in NC any holder of a jr. int has a right to file request for notice of sale simply publishing notice inthe paper isnt adequate b/c its unsure how it would come down more and more judicial foreclosure when theres substantial jr. interests

why did bankruptcy in constitution so there would be no debtors prision court can relieve you of your debts to split up the debtors assets equally or fairly among the creditors chapter 7 liquidation Chapter 11 reorganization typically business bankruptcy Chapter 13 wage earner plan simplified form of 11 for individuals only for individual only for individuals with a certain amount of debt, up to a level 13 trustee set aside a portion of the income to the trustee, who will distribute it monthly to the creditors on a pro rata basis chapter 12 reorganization plan for farmers 362, automatic stay 544 moment the bankruptcy is filed trustee or debtor in possession has a BPV standard

547 preferential payments 90 day insider -- 1 year transfers include a mortgage on the property (only on an antecedent debt) 458 fraudulent transfer inadequate consideration sweetheart deal if i loan you the money the day before you file, you will either have that money or something you bought with it, net worth with youre fine, just like something before cant have the it paid on an anticedant debt if i conveyed you my 500k house for 100k w/in a year, they coudl set it aside particularly inclinded to set it aside if you rented it back to me for a dollar a month if youre the lender in these trans, youve got to worry about the ttee or Debtor in possession who can seize that opp to turn them into unsecured creditors preferential transfer fraudlent conveyance if youve enen finished the foreclosure go all the way through, and everything is done how do i know that the borrowers not going to file a bankruptcy? several years ago, US SC said theres no foreclosure sale where it sells at real price distressed sale so long as correct procedure is correctly followed and its not flawed, then 458 doesnt get to set aside a completed forclosure if its not avoided or set aside, you dont lose your lean

debtor is discharged from debts personally loans become non-recourse loans relief from stay good cause -- boils down to whether or not theres a lack of adequate protection Look, this loan will get more and more in default interest is sitting here accrueing and my deficit is getting bigger property value is declining there is no equity in the prop allowing me to foreclose isnt going to affect anyone else BR court, heres the deal all that and nobody is looking after the property ability to pay taxes, insurance

and Im the only creditor heres an appraisal for the prop, even if you let them keep the prop, theyre not going to get a new loan or sell the property for enough money to do anybody else any good

11 ive got new people coming in, theyre going to provide me the money the property will be worth more, theyll be new tenants with new money Im providing evi that ive paid the insurance through 6 months, and the taxes are paid and arent due for another 6 my new investors have also said, theyre gonna give me so new money and ill pay some or all of the int going for so in 11s -- if i as owner can show that im brining new value new investments to property can show that i have equity can show that the property is necessary to an effective reoganization 120 days to file a plan very rare finding a br court to get rid of stay in that period basically sacrosanct sans risk of rapid devaluation

lender liability -- afirmative claims against look around, see if theres something that the client can use to put the lender at risk so theyre not simply putting the client at risk look for classic bad faith moves/claims you can make guarantor on loan made to entity trying to estab that bank made loan for develop of resi project future advances on the loan to install infrastructure for resi develop at closing, outstanding balance of 600k at foreclosure 1.4MM my problem is, i dont knwo where the 800K went i dont see any roads or street lights believe it got advanced by the bank under this loan to the partner to pay off other loans that the partner had with the bank bankers make promises that they didnt keep some people have tried to contend that banks have fiduciary duties where banks have special position of trust when they make loans app courts arent a big fan of this line of though we were relying on BBT to follow their procedures and they wouldnt advance money unless it was due and work ahd been done we thought we were partners with the bank typically third party claims against the lender, not borrower claim against ht lender developer obviously isnt in a position to fuss more often than not

pendlyn case bbt Ba were lenders for devlopers who had pretty much a ponzi scheme for deveoplemnts sued by a lot of people who bought lots sued bbt saying theyre in collusion with the developer to sell the deficient lots cant claim they should have known better and not loaned me the money

if youre a loaner need to make sure all your communications with respect to the loan are purely business in nature dont get friendly dont get mad if/when things go south as ledner only threaten to do those things you will do in the furtherence of collecting your debt and if you say youre gonna do something, go ahead and do it dont beat around the bush -- dont nice, neat, orderly, professional if you say im gonna foreclose on you if you dont pay you better have the ability to do it and you better go ahead and do it hard line to walk v. being fully informed in what youre client is dong and involved in what theyre doing want to know what theyre doing, what theyre spending money on, what their financials look like shouldnt be giving them advice on what to do you can tell them when theyre running afoul of the loan docs but dont tell them how to do their business you can become an insider for bruptcy purpose where lenders get in trouble be predictable about what youre going todo give notices theres a real temptation to say we need to go ahead and take his bank accounts and hell probably pull all that out and use it to hire a BR lawyer fine, if you wanna set off, set off BUT here is the procedure and we have to follow it out if we dont, you may owe him three times w/e it is you take you took all my shit and kept me from paying all my stuff back having said that if you have a client whos in jeopardy on a project and need to get a receiver important go on and do it file the ex parte make it happen follow a process

if your lender has policies about collecting loans, then FOLLOW IT dont make an exception when you do that -- hjes gonna say i got discriminated against for no good reason, i wasnt peacing out on town, ive had a passport all my life in todays climate advise client to try and avoid juries dont want to be BofA in a jury trial in NC and many states, cant preemptively waive a jury trial GS 26- somethign matter of public policy can provide for private arbitration Even in owner-occupied, typical that it will be a lease from dewlegal properties to dad. what is a financiable lease? one a lender will loan on owners get incensed about how lenders get involved in the leases if the borrower doesnt do very well, all they have to do is look to the lease it start to enjoy having lenders look particularly in the process of negotiating the lease belk knows you need them in the mall belk knows you know that they will extract a good lease from you Belk would love for belk to have an exclusive on sale of all optical not acceptable for us as a lender, were making a loan on the entire mall most of them have at least two places where you can get glasses, plus the kiasks guys my lender isnt going to allow this enlist 1 500lb gorrilla to help you fight the other 5000 lender can be a big help with respect to owner lender - can also start raising points about leases that as a developer as a property, you go, I dont care -- Ill live without another kiask but i cant live without hudson belk, and ive got all my other leases Owner syas -- i dont care if they have an exclusive thing and

if youre repping a lender and they want you to review them for them prepare a lease abstract summary of the terms of the leases you would normally do lease abstract form or checklist and youll go through and say are these in there?

Checklist - IMPORTANT whats being leased? is the premises clearly defined? clear that theyre leasing building -- but what is the premises

clear that the JS shoes is is going to occupy the store in exhibit a if i only have right to parking at a site over there described on exhibit b -what if owner decides to do something else does this imply that you cant change any of the parking spaces in exhibit b if i put an ATM out there, does that give them a right to break th lease b/c i took away their right to park there? who is the tenant? when you sign a lease with REI are you signing a lease with REI or a franchisee of REI or a single purpose LLC set up by REI to run this store how do you get to the money? i want the tenant to be the company with the money OR get the comp with the money to guaranty may be more prepared to have contingent liabilities on their blance sheet than direct liability gotta have the credit at least some place on the lease, doesnt necessarily have to be the tenant also comes up in insurance general liability insurance if the insurance that covers REI going to cover the tenant here, the subsidiary of REI what is the permitted use want to see on behalf of lender/landlord use ONLY FOR x permitted use if you leased to shoe store x limit lease to seling shoes and shoe related accessories but primary use has to be shoes that shoe store x helps lender/landlord to say to London fog -- youll be the only one who can predominately sell raincoats in the future you can promise london fog that no one elsell come in and be in the busi of predominately selling raincoats but JS shoes can sell a rain coat every now and then tenant wants it to say do x, or any other legal purpose tennant says, i cant sit here and say im only ever going to sell shoes what if JS shoes merges with another company that sells rainoats Belk is kicking our ass selling shoes, we cant compete, we want to sublet to someone else if its a nordstroms, you cant lockem down -- if its a js shoes, youre probably going to lock them down it doesnt mean you cant let them do something else, but it does mean they cant do it without them letting you restricing sublet im not interested in having you in competition with me so locking them down on use helps that if youve got a restrict that only using shoes and a thing saying -- consent to sublet wont be unreasonably witheld my reason is they dont sell shoes, and courts are good with that tenant mix is a HUGE deal, there is science behind running a mall Assigning a lease

youve not got a competitor -relates back to use -- b/c LL cant unreasonably withhold consent My reasons is that its not the reason we leased it to them if the lease says -- tenant cannot assign w/o consent and there is no standard for consent - LL can be say i dont want to rent to them, and NC courts say thats fine if K is silent as to assignment in general then tenant can assign routine compromise is that tenant cant without consent, such consent not to be unreasonably witheld, conditioned, or delayed so what is unreasonable some things are clearly reasonable -- i i cant be renting space to target and then ok targets credit if they want to sublet to roses im review this lease for a lender and im about to loan i find theres a tenant that got by and they can use their property for the sale of shoe or for any other lawful purpose and weve also go a restaurant, bonefish, and bonefish says we want an exclusive on being a seafood restaurant you know thats theres at least one lease out there that could potentially turn into seafood restaurant a lot of times atys dont see how hard it is to manage and admin the streets at southpoint so Are their restrictive usage or exclusives? are they in sync with everything else thats out there? is there a potential problem with somehting else out there?/could their be a problem so tell LL all the time, dont ever grant a restrictive or exclusion if you can help it on the other hand, really hard to expect certain kinds of tenants to say i need to be assured that im not going to put all this money in to come and then get half my busi cut out from under me have to READ THEM CAREFULLY their troubling but manageable you have an owner for a shopping center who is the LL granting leases under all these exclusives it gets more difficult if theyre not under common ownership or may not always be under common ownership in the future gave someone an exclusive they can be only Seafood at Streets then you start granting out down you need to make sure to put those restrictions on them owner of the property says, well I cant restrict property I dont own if im the lender and im making al oan on the streets and you see owner has said owner owners a shopping center three miles away and has an agreement with bonefish that he wouldnt have a seafood restaurant on his other property in a 5 mile area As a lender you ahve to have pause hes not gonna give a shit if your foreclose on him, and the streets isnt his prop anymore, and hes gonna open up a seafood restaurant there have to think about all the possibilities of these going wrong

if they do go wrong it measn that tenant has a right to terminate their lease make it a covenant between LL and tenant, and tenant can sue the LL for breach, but he cant get out of his lease and the lendor isnt liable for it if you end up making it personal as between the lender is thinking only about how does that restriction affect my asset if you dont have the credit in the tenat, you need a guaranty what does the guaranty say? ill guaranty only the payment of the rent if you cant collect from the tenant then well talk, but I wont be first gotta make you know what theyre guarantying if its just the rent but the lease has a lot of maintenance responsibilities, then that shit doesnt really matter lenders have to get after their LLs have you amended in any way is there a letter youve given saying since your busi is seasonal that you can pay 300 some months and 700 others or have you waived rent b/c of construction for a few months you need to have ALL the loan documents Lender gets tenants to execute an estopple most leases require them to do so upon request lease requires the tenant to tell them all the facts about their lease My entire agreement is attached to this estopple also want to get the Ten to say LL has performed all obligations to date especially as it pertains to construction responsibilities as it pertains to the lease also get them to state that the tenant hasnt prepayed the rent or if they have what theyve paid it up through so you as lender can make your adjustments a lot of times, tenants see estopples as a way to renegotiate the lease

Rent

read through and make sure they dont have any free rents if there are percentage rents how does it work is it enforceable? Do rents go up? do they go up in a predictible way options to renew at market rates what can that market rate be? is it detemined by appraisal method determined by LL determined by tenant lender -- I dont care so much that the rent goes up and how it goes up what i DO care about is that it doesnt go down down allow it to be subject to a formula or appraisal and the market says it should go down, and then youre obilgated to accept it or the tenant is out you may be fine accepting it to keep the tenant but you want it to be YOUR OPTION

Lenders MAKE SURE -- no right to set off against rent if youre supposed to provide me with heat/air/electricity and its not there for awhile i cant use my property I ought to be able to abate or if it snows and the LL doesnt clear the parking lot lenders tell LL to tell tenants you can sue me, but I still have to make my mortgage payment, you still have to make your rent not that it doesnt ever happen, sometimes youll see something like if fran comes through again and were without power for 2-3 weeks, then you can wipe but, but if youre without power for 3-4 hours, sorry wnat to make sure that there arent concessions for rent rent is 500 a month BUT nobody will be able to get in and out for two weeks b/c of the state fair and noonell be able to get in or out for two weeks so youre no rent then SNDA subordination rights under lease sub to LLs rights under mortgage lease would, otherwise, be attached to the owners estate if the owner encumbers that property thereafter, the lease is still above Non-disturbance agree they wont disturb to right as tenat so long as theyre in compliance with lease if we have to foreclose, we wont disturb you so long as youre all good how is it differnt from letting the lease just be first theoretically - Lender would not have all the obligations of the LL under the lease though tenant can stay in possession, the lender would not be obligated to do the things LL was when the lender forecloses, it wipes Tenants are pretty up to snuff, though if you the lender become the owner or someone else becomes owner through forclosure -- the new owner becomes obligated to the duties that the LL had, from the moment they become owner pretty acceptable compromise attornment tenant recognizes as the LL under the lease the new owner as a result of the foreclosure how rent ties in the estopple is nothing more than a snapshot these are the current terms and circumstances regarding the lease at the moment its signed if tenant prepaid for a year, if the lender forecloses two months later, theyre gonna be looking estopple document Lender wants to get in the SNDA wont pay more than 30 days in advance if you prepaid, too bad, dude

you signed the document that said i wont pay in advance I understand that I cant mod the lease w/o the lenders consent if theres an unscrupulous owner and you borrowed a bunch money onthe prop and everyone signed their estopple but owner then goes around amends the lease saying you can cancel with 30 days notice for like 150k to me thats not rent its a cancel fee can put these in the estopple or the SNDA or both lenders also see estopple as a chance to amend the lease someone had taken a ground lease form for something that wasnt a ground lease possibly why -- deal changed originally going to rent carmax the ground to build a facillity on LL says ill provide the money to build improvement if you pay a return on the money i provide to do that now youre leasing improvements, not ground if carmax built the facility themselves, and the building got destoryed carmax gets to keep the insurance proceeds so LL, if you wnat us to make a loan, youve got to go change these provisions in the lease not real easy to do Lender will try or req that leases be amnended in order to find them financiable

how are certain expenses handled underneath the leases typcially common area maintenance taxes insurance utilities some will be shared in common with other tennants, some will be exclusive as it relates to the area being leased who pays to pick up the pizza boxes out of the common area? Lender just wants to make sure that someone ispaying for it other than the owner of th prop OR if the owner is paying, what are they paying can say owner is responsible for common areas so when he rents, hell charge you enough to cover mort, cover expenses, taxes, etc and a little on teh side for him OR some areas are bigger than other passthrough the expenses based on a prorata basis rent + challenge wen you have leases entered into over time some bozo has a lease drafted that says the fees are collected on a lease year others are collected on a calendar basis and it can be difficult to keep up at the least it needs to be clear whos responsible for expense

so you can get back to -- what is the NOI, how much money is available to pay debt services so you can figure out the cap rate, and how much you want to loan real question of the lender with the leases in place, will the property support the loan?

TERM how long are the lease payments going to be made doesnt have to be a rocket scientist to figure out how long the lease is, it says its a seven year leas BUT if after 5 they can terminate with notice thats not really a 7 year lease, its a 5 year lease what if it says it runs from 2011-2018 BUT the rent doesnt commence until the tenant opens for business, and they can open for busi during any time during hte first year of the lease need to get in there and read this as a lender i care about the time this loan is being repaid PLUS some if im the perm lender givng a loan for 10 years with 20 years amortization in 10 years, paid down substantially, but not even half repaid need to be concerned with the 10 years and that at the end of the 10 years you have a property thats marketable enough to pay off the loan either through paying it off out of pocket or refinanced not reasonable to have leases for 15 years will be looking for the anchors to have that, need the anchors to have them far in excess of their terms what are the renewal options LL hate renewal options they have no control over a renewal especially if its for a stipulated amount of rent well if they want to say there, theyre going to want to stay there at the end of term and we can negotiate it then if the tenant looks around and if the stiuplated amount is great deal, theyll stick around if not, then they wont stay there anyways its lose lose were going to be negotiated unless its a rent to be negotiable agreements to agree are not enforceable how do you decide rents if you dont stipulate if you dont stipulate what rents are gonna be if we cant agree on what the rents are gonna be, each of us will hire an appraiser and well average them each will hire and the two appraisers will hire a third and well average the two closest baseball arbitration each party gives a number and a third party looks at the two and they pick one and that binds them

i have to pick the winning number

lender looking at that -- is this an marketable option to renew will it adversely affect the value of the building and the amount im willing to loan assign/sublet need to make sure youve got something that covers it all if youre renting to a corp, and they transfer a controling interest in their corp to someone else, that would be covered need to make sure people cant do indirectly what they cant do directly even if you have a great one and it says that if its sold, that violates if they come to you and say, we want your consent, which btw were going to do anyway b/c its a lot more important than this one little store and even in great RE markets, noone is beating down your door to rent occupied space and assuming that you did a good job drafting your lease and the rents are market rates, youre not going to kick them out differnce between monetary and non monetary defualt you want them to be responsible for paying their rents on time what if it gets lost in the mail compromise if there is an occasion that you dont get your rent on time, then well give you notice and then give you a few days but were not gonna make a habit were not in the rent collection business, were in the rent receiving business well give you 1-2 times a year to give you notice and after that if it happens again youre gone need to understand the types of properties you have if you have property that its reqd that the tenant occupy and use if they go dark their gone if you have a tenant on precentage rent, its important theyre there also, if theyre perceived as being critical to your success like a harris teeter or something co - tennancy clauses the only way im going to be in your development is if x is there if and when theyre gone, im gone would love to have an accelleration of rent on default tenants are not keen on this a loan, lender has given youthe money and all of it on a lease, hey, youve still got he the spance and if youd mitigate your damages i shouldnt owe you so much i dont want to have to sue you ever month or every sixth months and i dont want to have to spend all my time in lawsuits with you saying im not doing a good enough job trying to re rent, especially when youre the one who defaulted for awhile -- in NC obligation to mitigate dam would be implied in any circumstances in a comm lease, a tenant can waive the reqt LL mitigate damges

properly drafted acell have to provide that it would be reduced to a present value but a court would prob uphold it provide some credit for fair rental value of the property over the period of time you kick a tenant out over the next ten years, im willing to discount them down for TVM, but yove got ten years on which you can do with tthe space, shouldnt they get some credit for what you can do on that space if ive got other empty spaces, its my opinon that i can rent all those other before irent your space, ive already rented your space NO-NOs from a lenders POV, cant have them cant have unless they subordinate these rights cant have purchase options lender isnt going to be happy, youve just capped the value of this property only reason the tenant is gonna buy is b/c its a good dead even if the purchase option price is more than the rent term right of first refusal right of first offer lenders arent interested in anything that makes the property less marketable fom lender, if we foreclose, we want to be able to move along and we dont want anything to inhibit this preemptive rights right of tenant to expand or contract space what about right to expand that property has to sit stagnant or in short term leases to keep that up affects the marketability

NEED TO MAKE COUSIN VINNY references