Green Door Funding—Tips to a Successful Commercial Real Estate Mortgage Closing

We believe that a simple action taken at the right time will save time, money and effort. By using these suggestions, we hope to transform pressurized, error-prone nightmare closings into smooth, ordered and professional transactions. Whenever possible, use the initial application and the final offer to attempt to eliminate as many obstacles as possible in an effort to have a successful commercial real estate closing.

While no one can anticipate every possible issue, at Green Door Funding, we try to help our clients anticipate the issues that might arise during the financing and real estate closing process. Here are some suggestions:

#1- Consider the type of loans available and apply for one that suits you. With regard to the structure of the loan, consider all the different ways your real estate project might unfold and plan for contingencies. For example, if there is a chance that you will convert your newly acquired multifamily or mixed-use property to condominiums, you will want to be sure that your lender will agree to have the loan repaid as the units are sold (released).

Communicate with Green Door Funding and the Lender so that you will avoid a common mistake. A long-term fixed rate might be a terrific play given today's interest rates, but not if you might convert your new project to condominiums and need to prepay (with penalties) your mortgage incrementally.

#2- Consider the Title, Environmental and Building Issues. Once you have accepted an offer from a lender and you're waiting for the commitment, your attorney should be ordering environmental and title searches. [Little known fact: Most real estate attorneys order title work from companies that they regularly use, which means if the deal falls through there often are little or no fees for the title search].

Title searching often takes time, so start early to avoid delays.

#3- Consider Whether a Survey is Appropriate. With regard to a land survey, make sure you are aware of the lender's requirements. [Little known fact: if your new lender will require an ALTA survey, and the old survey was not prepared to those specifications, order it once you have accepted an offer rather than waiting for the commitment because it may take several weeks to receive.]

A survey could take 4 - 6 weeks because surveyors are often quite busy and infamous for slow turnaround.

#4- Consider whether you may obtain an assignment of the existing mortgage. In New York State, unless provided for in loan documents, lenders are not required to assign its mortgage to a new lender. Most lenders will assign mortgages and charge a reasonable fee. Others will attempt to “share” in the mortgage tax savings by requiring a more expensive fee.

When negotiating with the new lender you should ask the lender to assign its mortgage for a “reasonable” fee not to exceed a certain dollar amount.

#5- Consider the Mortgage Taxes. It is important to remember that in the City of New York, a commercial property borrower will have to pay mortgage recording tax for loans above $500,000 of $2.80 per one hundred dollars ($100.00). If you can persuade the existing lender to assign its mortgage, you can save this tax.

Initiate this process so that the new lender's attorneys may review, comment and approve the assignment quickly and efficiently.

#6- Consider the Insurance Issues. Insurance issues require your specific and immediate attention. [Insurance “Agents” work directly for Insurance Companies and are “agents” of the insurance company. Insurance “Brokers” are generally independent from insurance company and owe duties to their clients (You).]

Review what the lender might require with a competent and well-rated insurance broker. Remember, insurance is another level of security, you should trust that your Broker will competently bind appropriate insurance.

By using these suggestions, together we can anticipate the pitfalls and help you achieve a smooth closing by using time efficiently and focusing you on the important issues.