Tips in dealing with your banker
Learn from the tips in these continuing articles.
Tip No. 13 – Get an environmental report before you sell
An environmental report is required before most commercial real estate loans can take place. If you’re selling a piece of property, or just refinancing it, federal law may require you to get an environmental report called a Phase One. (In some cases, a Phase Two, which is more comprehensive, might be required.)
Once a report has been issued, any problems noted in it have to go through strict EPA remediation procedures before the loan can proceed, if it can proceed at all. That means lots of red tape and, you guessed it, additional expenses. Big expenses.
A better plan of action is to, independently, contact an environmental expert. You can find companies that do this type of work either online or in the phone book, or you can ask your friends to recommend companies they’ve used before. Whatever you do, don’t ask the bank, because you want an assessment that’s independent of the transaction. Once you’ve found that company, hire it to come out, walk the land with you, and point out what needs to be fixed.
After you have the inspector walk and show you potential issues, solve them, assuming they aren’t material. Do not ask for a written report. Now call a different inspector to do the phase one, or allow the bank to order it. You will be asked to furnish all reports concerning environmental matters and you can’t lie about material items, but you will be much more likely to get a clean report.
What is a clean report? The banker will most likely look at the executive summary, usually one page. It will either say no issues were found and no further action is recommended, or it will list issues. If that first page is clean, you are likely home free. The rest of the report is a lot of technical gobbledygook. I am as environmentally sensitive as anyone and insist you should never lie about serious environmental matters, but you can improve your odds of not having trouble with some preemptive work.
Tip No. 14 – Ask the lender to sell your loan instead of paying it off
Instead of paying off a loan, ask the lender if it will sell the loan, which will minimize your costs if you are moving it or refinancing it with another lender. There are costs associated with every new loan. You have to get an environmental report, and a survey and you have to pay origination fees. You might also need to get another appraisal.
However, if the original lender sells the loan to a new lender, all of the protections afforded by underwriting automatically transfer with the loan. (Of course, the new lender is going to want to see all the documents before buying the loan.) The new lender is also protected from any additional liens that might have occurred since the first loan was made.
As a general rule, lenders don’t like to sell loans, because they don’t want to make it easy on clients to move the loans and as good businesspersons they want the maximum amount of interest they can earn. They want the income from that loan, so they make it hard for clients to move their business to a new lender. They’re not being mean; it just makes more sense for them, financially, to hold onto the loan.
In the most amicable of arrangements, or with a fee, many lenders will be willing to sell the loan to a new lender. This can be much less expensive for both the borrower and the new lender, even if the original lender charges a fee such as one month’s interest. If the original lender is going to lose the loan, it’s more palatable to at least get one month’s unearned interest as an incentive to sell it.
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Ron Sturgeon is past owner of AAA
Small Car World. In 1999, he sold his six Texas locations, with
140 employees, to Greenleaf. In 2001, he founded North Texas
Insurance Auction, which he sold to Copart in 2002. In 2002,
his book “Salvaging Millions” was published to help
small business owners achieve significant success, and was recently
reprinted. In June 2003, he joined the new ownership and management
team of GreenLeaf. He also manages his real estate holdings and
investments. You can learn more about him at WWW.autosalvageconsultant.com
He can be reached at 5940 Eden, Haltom City, TX 76117, firstname.lastname@example.org or
817-834-3625 ext 6#.