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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   October 2005

It’s the Little Things that Count

Paying attention to loan-application details can ensure a smooth transaction

c_2005-10_Fenn_spotHow important is it to pay attention to the request for detailed information when filling out your loan application? Extremely. It can determine whether you will fund your loan before the scheduled close-of-escrow or have to extend beyond to accommodate your lender’s request for pertinent information. It can determine whether you miss the final date to fund a tax-deferred 1031 exchange, thus facing an unwanted tax liability. It can determine whether a seller decides not to extend your escrow because property values have increased while the application was held up.

It is, therefore, in your best interest (as well as the borrower’s) to provide your lender with the requested information in a timely fashion.

Although it may seem that lenders are asking for far too much information, borrowers often don’t realize or care that this information is part of the Federal Regulatory Agency’s requirements to maintain compliance. Lenders do not require more data than they need. Doing so would slow down the processing time, creating more expense in borrowers’ fees and preventing the companies from funding more loans. While each lender may have a slightly different process, they all get to the same place and need similar information.

An entire loan will often get pushed aside if just one piece of information is missing. Here’s why: Although most lenders have some form of underwriting/processing software to assist with the volume of their transactions, real people still make the majority of final decisions. So if underwriters or processors are working on an application and are missing some important data, they generally will stop working on that application until the missing information is provided. They won’t sit at their desks waiting but will pick up another application and process a new loan. Most likely, they will continue that loan through to conclusion because it’s more efficient to follow one loan through without interruption.

So for brokers, a little investment of time upfront during the application and processing stage can pay huge dividends later. Taking borrowers’ perspectives into consideration is important, especially in our somewhat volatile and rising-interest-rate environment. If a loan is held up, it often means borrowers won’t get the original rate they were quoted and will instead face increased rates. Higher rates (and consequently payments) can often drag their debt-coverage ratio lower, sometimes to the point of lowering the loan amount or having it declined altogether.

 Most lenders provide brokers with a “needs” list of items that are required in addition to the standard application form and financial information. While the application packet itself may be enough for a lender to issue a letter of interest, additional information is always required to complete the transaction to commitment and final funding.

Below is a list that illustrates some of the essentials most lenders need to process an application. It is not intended to be all-inclusive. After all, with the variety of “vesting” entities (e.g.,

individuals, partnerships, corporations, LLCs, trusts), each application takes on its own characteristics. Also, property type (such as apartment buildings, retail strip centers, construction loans for tract homes, industrial buildings or offices) will further dictate what is needed. For the most part, though, it should be helpful to review this generic list before sending in a commercial real estate loan application:

  • Completed loan application packet, including all forms
  • Signed credit consent form 
  • Two years of personal and business tax returns including all attachments if applicable (W-2s and K-1s)
  • Two years of operating statements (profits and losses)
  • Certified escrow instructions
  • Copies of current bank statements (two months from both personal and business accounts)
  • Resume/management plan
  • A broker demand, W-9 and copy of broker license (if the loan involves a broker)
  • Insurance agent contact information (name, phone and fax)
  • Letters of explanation on credit report (if applicable)
  • 1031 exchange letter (if applicable)
  • Information and/or copies of leases
  • Rent roll (if applicable)
  • If vesting is held in a trust, pertinent copies of the declaration of trust

  If vesting is held in an LLC, the following are required:

  • Articles of organization
  • Executed operating agreement
  • Certificate from Secretary of State

If vesting is held in a corporation, the following are required:

  • Articles of incorporation
  • Certificate of good standing
  • Resolution to borrower   

If vesting is held in a partnership, the following are required:

  • Partnership agreement
  • Recorded certificate of partnership
  • Recorded LP-1 statement (for limited partnership only)

Most of this information should be easily obtainable if borrowers are organized. If the information is provided in a timely fashion, appraisers will generally complete their assignments on time as well. The drawing of the loan documents and the closing should come soon after the commitment.

A cohesive working relationship among the borrower, broker and lender will provide a satisfactory experience for all involved. All parties have the same goal fund the loan as soon as possible. Paying close attention to the details upfront can make it a “win-win-win” situation.


 


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