Law & Accounting Offices of Stanley F. Bronstein
Scottsdale, AZ 85260
have represented clients on MANY deals with EXCELLENT commercial mortgage brokers.
us and we can help you arrange the loan you want.
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Conduit loans are loans that are grouped together to pool together groups of individual loans that are backed by similar assets (typically real estate) and then sold to outside investors (typically on Wall Street).
Strict underwriting standards are set by these investors / buyers that can often be limiting to borrowers with unique properties or that have special requirements. The loan application process can be intimidating for borrowers new to conduit loans since every loan has strict and comprehensive documentation requirements.
However, the upside to these loans can be considerable. Conduit loans are nearly non-recourse, except for certain areas known typically as "carve-outs" or "bad-boy" provisions. These carve-outs / bad-boy areas include, but are no tlimited to, things such as fraud commitment by the borrower, mismanagement of the property, waste of the property and theft.
Conduit loans are typically assumable by a third party who may want to buy your property for a 1% fee, provided the third party passes the strict due diligence requirements of the lender. These loan usually have a fixed rate that is tied to the 10 year T-bill and approximately 1 1/4 to 1 1/2% lower than conventional bank loans.
On the negative side they require much more due diligence on the part of the lender which the borrower has to pay for, much more documentation and legal fees which the borrower has to pay for, do not allow for secondary financing and can only be prepaid in the last 3 months unless the borrower pays a large enough fee (defeasance) to make the lender whole on the investment. The bottom line is that the additional costs and fees typically take 1 to 1 1/2 years payment differential to recoup, a buyer would have to pay a larger cash down payment without secondary financing and if a borrower wants to prepay the loan, through a process known as defeasance, there would be a large prepayment charge unless interest rates went up by several percent.
Conduit loans are an area where you should choose your legal counsel carefully. Conduit lenders typically require that you associate yourself with legal counsel that is licensed in the state in which the property is located. For example, if you are a California investor who wants to buy commercial property (such as a shopping center, apartment complex, or office building) in Arizona, most conduit lenders are going to require a legal opinion letter from Arizona legal counsel. If you are using an attorney licensed in another state, they would be unable to complete the transaction for you. We have frequently been hired by borrowers at the last minute to help provide an Arizona opinion letter when their out-of-state legal counsel realized that one was needed.
When you choose an attorney for your conduit loan, you should hire a law firm that has extensive experience in conduit loans and in tax law. Often these deals require careful structuring to meet your lender's requirements and the requirements of the IRS (expecially if you are doing a 1031 tax deferred exchange or a tenancy in common - TIC deal). Just as you should not hire a tax attorney to handle your divorce, you should not hire an attorney who has never done a conduit loan to handle your conduit loan transaction. It will probably wind up costing you more money in the end and wasting a lot of time.
To get a price quote or more information, call us at (480) 827-2529 or
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