I have a meeting with the bank today on my commercial loans renewal. My bank insisted on new appraisals on all the homes we have on a wrap loan that was up for renewal and of course the values came in far lower. When we did the loan originally the values were 2.6 million and they loaned me 65% of value. We have since paid the loan of 1.7 down to 1.5, not missed any payments, taxes or insurance and not been late. The bank told me originally they were putting the 46 homes in the package up for three bids by appraisers but when it came down to it told me the appraisal department decided there was only one appraiser they trusted to do the job. Amazingly this appraiser was charging 3 times what the rate was on a drive by appraisal. This package also includes a small motel and I have not gotten its value back yet but the homes that had an original value of in excess of 2.2 million have now come in at 1 million dollars. Bank wants me to put up additional collateral, just happens to be the rest what I have. We do not plan on putting up any addtional collateral at all and I told them so when we began the process of the appraisal. I also happen to have a retail shopping center that I should find out today what the appraisal value of it is for another loan that is now up for renewal as well. Should be an interesting morning meeting. Any ideas? Just for another tidbit I signed personally on all of this when I had absolutely no feeling we would have the times we currently have and put down my own cash of over 1.2 million into all of this plus just a tiny bit of sweat and blood of course.
I can not tell how experienced you are with commercial lending.
The idea that a commercial lender wants to reassess the collateral and that they expect the debt to be reduced when the collateral drops is pretty normal IMHO. In effect you have breached the loan terms and are in technical default. Assuming the contract is clear, the lender could call the loan due or take over the portfolio. I am not saying they will or that it is in their best interest.
I would carefully check the loan T&Cs plus I might speak with a friendly commercial lawyer to fully understand where you stand. Keep the dialog going with the lender.
Hi Bill,
Good to hear from you! Trust me on this… what you’re dealing with is standard operating procedure. I won’t go into all the technical details, but the banks are operating under a new set of rules regarding refinancing of CRE which took effect as of Jan. 1, 2012.
Give me a call and let me know how it went yesterday. We’ll need to pull up the latest filings for the bank like we did a couple of years ago, qualify the bank, and then decide the best options.
ray
Never enough experience
I appreciate both responses. I am just a small fry as part of a entire meal it seems. I am just a worker and have accumulated a decent size portfolio but am learning that it is not just about hard work and doing the right thing but about banking regulations that seem a bit out of my control. I had a good meeting with the banker with them wanting all I have and me not wanting to give up any of it. Now I have to see what happens. The banker told me to take a couple f days to think about it but I told them to take it to the board and find out what they are going to do. I am sure that a decision will be made shortly on their part and then I will know better what to do. This board is very valuable with many experienced people who are more than helpful and all that is very much appreciated.