Financing do's & don't's.

In today's financial environment, many owners are refinancing to take advantage of low interest rates or financing to acquire new properties. In the rush to obtain financing, owners should pay careful attention to the letters of intent or commitments letter issued by lenders. To maximize the benefits of the financing, borrowers should also examine their goal, whether it is to lock in a low interest rate or to take out some of their accrued equity in the property.

With intense competition among lenders for each loan, borrowers can ask for and receive accommodations that will benefit them long after the closing. The best time to ask your lender for any changes is when the commitment letter is issued. A short letter from your attorney addressed to the lender written at the same time that the commitment letter is being returned to the lender or the mortgage broker, if one is involved - is usually effective.

Some lenders will issue a preliminary proposal before the commitment letter is issued and ask the borrower to confirm its desire to proceed before a commitment letter is issued. In that instance, the issues listed below should be addressed at the same time. The following are examples of several changes which are beneficial to borrowers and readily agreed to by most lenders:

* Prepayment provisions should be modified to allow the borrower to prepay the loan in full without penalty prior to the expiration of the term of the loan.

* Due on sale and transfer provisions should be modified to allow members, officers and/or partners of the borrower to transfer their interests in the borrower by, among and to family members without constituting an event of default.

* If the loan is a refinancing for a property that is owned by a individual or by a general partnership, the commitment letter should permit the borrower to transfer title to a limited liability company without the lenders consent, provided there is no change in beneficial ownership. Borrowers should take the opportunity of refinancing to assess the status of the entity that owns the property to determine if conversion of a general partnership to a limited liability company is advisable now that both New York State and New York City recognize exemptions from transfer taxes where there is no change in beneficial ownership. If the conversion of the existing entity cannot be accomplished by the time of closing, most lenders will permit borrowers to effectuate the conversion after closing.

* The borrower should be permitted to deliver financial statements prepared, but not certified, by an independent certified public accountant, so long as the statements are certified by the borrower.

* If the borrower is required to transfer lease security deposits to its lender, the borrower should be allowed to transfer lease security deposits after closing.

* The lender should acknowledge that the representations of commercial tenants in estoppel certificates may be limited by the terms of a tenants lease.

* The lender should agree to accept an assignment of the existing mortgage if the title insurance company will insure the mortgage as assigned.

The lender should agree to provide the borrower or its designee, with an assignment of mortgage in recordable form and all original loan documents upon satisfaction of the loan.

Borrowers and their attorneys should also check to make sure they receive the discounted rates for mortgage insurance which are available when an existing loan is modified. The percentage of the discount varies depending upon how long a period of time has passed since title insurance was last obtained and the amount of the coverage.

In short, borrowers should set aside some "quality time" with their attorney to focus on some relatively simple issues which can yield real current and future benefits.