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The Winter Report
By Gregg Winter, Thu Dec 8th
We're all aware of the "time value of money". Well we shouldalso compare the strategic value of a simple action taken at theright time, vs. the value of the same action taken too late inthe game. The difference can (and usually does) amount to aneasy task that has now been transformed into a pressure-cooker,error-prone, last minute nightmare. Whenever possible, use thefallow time (between accepting a lender's offer and receivingthe commitment) to your best advantage, clearing as manyobstacles out of the way as possible. Anticipate the Obvious: While no one can ever anticipate every possible contingency orproblem that might arise during the financing process, it'sfairly simple to anticipate a number of routine occurrences andrequirements, and to sweep as many of them out the way as earlyin the process as possible. Clearly, once you have accepted anoffer from a lender and you're waiting for the commitment to beissued, it's usually a good idea to pull the trigger and orderthe title searches. Most real estate attorneys can order thetitle work from a company that they regularly use which iswilling to assume the risk that if the deal does not close,there will be no fees for the searches.
Since title work is still one of the more primitive andtime-consuming parts of the process, the earlier you start, thebetter. That way there will be plenty of time to deal withdelays and to resolve pesky violations or other issues that mayarise before the stress-laden pre-closing days arrive. With regard to the survey, at the very least, make sure you'reaware of the new lender's requirements. For example, if your newlender will require an ALTA survey, and the old survey was notprepared to those specifications, order it once you've acceptedan offer rather than waiting for the commitment as the surveycould easily take 4 - 6 weeks. Many surveyors are currentlyquite busy and not famous for quick turnaround, so by all meansdon't leave this until the end. Assignment of old mortgage - 1) God-given right, or 2)professional courtesy typically extended?: "What do you mean, I'll
have to pay $154,000 in mortgagetax?!!!!" No one wants to pay any more mortgage recording tax thanabsolutely necessary. Remember that if the property is in NewYork City, the borrower will have to pay mortgage recording taxfor loans above $500,000 of $27,500 per million. Clearly youwill want to minimize this tax by having your new lender take anassignment of the old mortgage. Let your new lender's attorneysreview, comment upon and approve the old mortgage and noteearly, rather than late, in the process. This is one more simplestep that you and your attorney can take to minimize stress inthe days leading up to your closing. Don't paint yourself into a corner: With regard to the structure of the loan, at the outset,consider all the different ways your project may play out andplan appropriately. For example, if there is a chance that youwill convert your newly acquired multifamily or mixed-useproperty to sometime down the road, you will wantto be 100% sure that your lender will agree to having their loanrepaid as units are sold (and as their collateral is whittledaway). A long-term fixed rate might be a terrific play giventoday's interest rates, but not if you might convert your newproject to and may therefore need to prepay yourmortgage incrementally. Similarly, if there's a good chance that you might sell theproperty within a few years of your closing, plan carefullyabout your prepayment penalty and/or your new lender'swillingness to permit a buyer to assume the mortgage. To sum up: There are enough things that can go wrong and/orcause delays. In order to achieve a smooth closing, use anyslack time to move as many of the obvious tasks from the "to do"column to the "completed" column sooner, rather than later. Whencrunch time comes just before the closing, you'll want to beconcentrating on any important loose ends in the mortgagedocuments, rather than being distracted by the trivia and "whitenoise" of routine tasks that should have been completed weeksearlier. Gregg Winter, President Winter & Company Commercial Real EstateFinance 13 East 37th Street, NYC 10016 212 532 1122 ext. 1gregg@winter-co.com www.winter-co.com About the author:None
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