Absolute Assignment of Leases - Ever had a lender require this?
Have you ever had a deal where the lender required an "absolute" assignment of leases? 5 days away from closing and the seller, who is doing a carry back with 50% down is requiring the buyer sign a absolute assignment of leases. Does anyone else find this to be absurd? Property is in California.
[{"id": "hadl863", "text": "At 50 percent down they can fuck off. That's a ridiculous ask at that low of leverage", "replies": [{"id": "hado27e", "text": "I agree 100%", "replies": [], "depth": 2}], "depth": 1}, {"id": "hadt9d9", "text": "The standard for a institutional lender would be to require a conditional assignment of leases and rents. The general requirement is that the owner can continue to collect rents provided that there is no current default under the loan documents or condition that left uncured would lead to a default. \n\nAnd, this conditional assignment would be present in cases where the percentage of loan to cost is up to 75-80%. \n\nAre there other considerations that are not disclosed, such as a poor or below average credit history of the proposed owner?", "replies": [{"id": "hadz5lq", "text": "No, Buyer is solid and has $800k equity in their personal residence in addition to putting 50% down on the $2.7MM building. The loan payments each month will be less than the money being collected by the tenants in the property. There is no reason for the seller to fear a default by the buyer.\n\nMy opinion is the \"lender\" is trying to take advantage of the situation thinking the Buyer wouldn't question it. Some people we deal with are just shady...", "replies": [], "depth": 2}], "depth": 1}, {"id": "haev6pw", "text": "So there is no lender involved you're client is getting seller financing... does the seller have experience holding seller's notes? It sounds like they are scared and throwing every lender \"protection\" they can into the deal.\n\nIn my state a secured creditor can &amp; will file an assignment of leases and rents separate from what is included in the deed of trust. It further protects the lender &amp; provides leverage in a default. It allows you to step in and collect the rents in lieu of the owner which is an absolute hammer blow for a struggling or reticent borrower.", "replies": [{"id": "hag452x", "text": "The Seller is trying to bypass having to go to Court if the buyer is 30 days past due on payments. I have no issue with an assignment of leases....the issue is an \"absolute\" assignment of leases. They are 2 different things.", "replies": [{"id": "hagdb21", "text": "Yes. That's the whole point. It allows the lender to act against the cash flow of the property independently of the other collateral. Give notice to the tenants and cut off the obligors cash flow.  In certain jurisdictions (unsure of California) it isn't stayed by a bankruptcy filing so the creditor can continue to collect rents and service their debt during the proceedings. It's a very pro-creditor document. \n\nIf your client is putting down 50% what are the terms of the seller note that you're worried about not being able to service the remaining debt?", "replies": [{"id": "hagh8ek", "text": "Yes, exactly and that is the intent of the creditor. Concern is, creditor wants this to kick in in 30 days of non payment rather than 90 days which is standard. Concern for buyer is...30 days is really fast, especially if there is some type of emergency they are dealing with (lets say they get sick or something....and need a little more time to cure the default).", "replies": [{"id": "hagiwtz", "text": "30 days of non payment is 60 days from the last payment. \n\nOriginally it sounded like you were agasht at the concept... now it seems like you just want a (longer) cure period.", "replies": [{"id": "hagjj9a", "text": "No, we aren't against the concept...just feel a good median point is 60 days rather than the 30 days the note holder wants and 90 days I would prefer for my client. Keep in mind, I rep the Buyer....not the seller. My duty is to protect the buyer in this particular case.", "replies": [{"id": "hagn6sf", "text": "I understand but the orignal issue is with the \"borrowing money\" from the seller not the \"acquiring real estate\" part of the transaction... if your client was borrowing the money from a bank would you review his loan documents and opine on them?", "replies": [{"id": "hahtq5f", "text": "No, I wouldn't.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "haf0zwv", "text": "Was this condition part of the PSA or seller-financing term sheet?", "replies": [{"id": "hag3w1v", "text": "The AIR PSA was used, so definitely NOT a part of that and Seller never mentioned it until the 11th hour when the docs arrived yesterday.", "replies": [], "depth": 2}], "depth": 1}]