[joseph1633]

We have a unique problem situation and we really need to refinance one of our properties. I have written all the specifics so that you can understand the whole issue.


The property address is in Brooklyn, NY. It is a three story building (about 4800 square feet), with a retail unit on the first floor and six residential units on the second and third floors. All units are currently fully rented. Monthly rental income is approximately $8500. The current mortgage, was taken out in 2002 in the amount of $350,000 and has a 15 year term, with an interest rate of 7.875% and an outstanding principal of about $185,000. Title is held in the name of a New York limited liability company (LLC). When the loan was taken out, the member of this LLC was my grandfather. My grandfather passed away about 2 years ago and the current membership of the LLC is split amongst me and my three brothers (25% each). To be very open, the bank was NOT notified of the change in ownership of the LLC. The mortgage has always been paid current and I assume that is why they have never had any ownership questions, etc. However, I realize that this may be a default under the mortgage and so do NOT want to risk having the bank find out about the current ownership of the LLC, and call the loan without the assurance that a new bank would refinance the property and ensure that original bank gets paid off.

Refinancing is extremely important as my father (who paid the mortgage for the property) has suffered a major heart attack, is in extremely critical condition in the hospital and has left my mother and my brothers with tremendous credit card and other debt. The relatively low outstanding principal balance and the relatively high current interest rate (by today?s standards) on this property make this a very attractive (and perhaps the only) opportunity to give my mother and brothers the financial relief she desperately needs. On the other hand, we do not want to have the current bank somehow find out about the ownership change and call the loan due without a refinancing in hand, as that would obviously put us in risk of losing the property altogether.


I am not familiar with refinancing a commercial property and especially wary due to the ownership structure of the LLC. I guess among the questions I had were:
1) Is there a risk that the current bank would find out about the ownership change through a refinancing application process? This is obviously an important threshold question, since while I can handle getting turned down for a loan, and I cannot have the current bank find out about an old default as well.
2) What would a refinancing bank look for with respect to its decision on refinancing the property? I?d assume it would run a credit check on me and my three brothers. The problem I foresee is that there may not be much in terms of credit history and assets to fall back on. One brother is a minor (13 years old). The other two are students 23 (no current income or assets ) and 25 (finishing up school and starting to work but no substantial income or assets). I am 29 and a 4th year attorney. I currently have a home mortgage but my father in law is on the deed ? (although I am jointly on the mortgage with him and I am the one who pays it every month). If helpful, we are of course willing to be listed jointly on the mortgage and are willing to consider other options to try to bolster the creditworthiness of the mortgagor. Unfortunately it is not an option for either of my parents to be listed on the mortgage or LLC due to tax and other reasons.
3) What other requirements would a bank look for in refinancing this type of commercial property? Would it need old rent checks or tenant estoppels to verify the income at the property? Would it need tax filings of the LLC ? Would it need building related permits and C of Os?



While I tried to make the above summary as comprehensive as possible, I assume there will follow up questions that need to get answered and points to clarify. Please respond, and remember, my primary concern is if there a risk that the current bank would find out about the ownership change through a refinancing application process?

THANK YOU

Joseph

[ScottGem]

The ownership of the property hasn't changed, it is still the LLC, correct? All that has changed is the ownership of the LLC. Unless there is specific wording in the mortgage contract about changes in ownership of the LLC I don't see how the bank can claim change of ownership. Change of ownership occurs when the names on the deed change.

When a bank makes a loan to business entity (be it a Corp, S-Corp, LLC, etc.) they understand that the ownership of that business entity can change.

What a bank would first look at here is the income generated by the property. If the income is enough to cover the mortgage (allowing for periods of vacancy) then that would be enough. If not, they will look at the income of the principals of the LLC to see if they can cover the difference.

[joseph1633]

Correct the ownership has not changed. It is still owned by an LLC that is made up of my three brothers and I. My grandfather, who is still listed as the borrower of the mortgage right now, is Not on the deed. He never was part of the LLC that owns the deed either.

Is it still a problem?

[ScottGem]

If your grandfather was listed as the borrower that essentially means he personally guaranteed the mortgage. It also means that lender MAY want the borrower to be an individual rather than the LLC. This could affect the refinance, but shouldn't result in a call of the loan.