Co-Mingling Of Proerties!
The mortgage broker has set up a very creative financing package for the latest project. 80% First, 15% Second and 5% Private Investor. The only catch, (I was just informed three days before closing) is that the private investor will need to use one of my other properties as collateral. The broker says they will place a lien on the other property and one week later will transfer the lien back to the subject property. He says that this is necessary because the institutional investors will balk if there are too many liens on the subject property at closing.
Does anyone se any problems with this? I feel slightly uncomfortable just because I know that things might not work out as planned and my equity on the other property is tied up by this loan. I also don't want to co-mingle properties if I can avoid it.
Am I just worrying for nothing? Is this standard practice in the world of financing or should I run far and run fast? Your comments and experiences will be much appreciated.
Thanks,
JS
Anyone???
All opinions are welcome.
Thanks in advance
JS.
Sounds a bit fishy, in my opinion...
This is a technique that has been taught in seminars for years. If you have notes where you can substitute collateral, it can work to your advantage at times. The only issue that I see is that institutional lenders like to look at all of the loans on all of your properties. I doubt that you would have any difficulty doing this, particularly if the loan were put on well before closing. This way the institutional lender could see the loan during the application process. You can move it over some time time after closing.
I have done something similar. I have had seller carrybacks put on long after closing and have never had any difficulty.
Addressing your concerns: I don't think that your concerns will cause you any difficulty. If the sale does not go through then you can pay back the loan and remove the encumbrance. If you have a substitution of collateral clause in the loan or addendum, you can put yourself in control of when you move it to the new property.