Mixed use financing: lender wants seller’s tax info?
Hi all. I’m trying to put together financing for a mixed use property in which I will be living which has a medical office unit as well ( 2 residential 1 medical) my lender in addition to asking for my financial info is also asking me to obtain from the seller tax info on the building for the past 3 years. Is this normal? My lender says I am very much in a good position to be lent to and that “Both your credit, available cash and personal income more than adequately qualifies you for the loan. Now it’s time to qualify the property.”

It’s in a hot market and the sellers agent has mentioned cash offer and stuff numerous times and I just don’t get the impression they want to be bothered with providing info so I can get financing lined up. Any advice?
[{"id": "iuzcxvv", "text": "Sorta - they\u2019re trying to underwrite the income and expenses of the property to derive a Net Operating Income. Lots of lenders underwrite to actual expenses in an acquisition.\n\nThat being said, a sellers tax return is kinda private and there\u2019s a million reasons why they wouldn\u2019t want to disclose that info to the buyer of his her property. You simply may not get your hands on it but if you do, definitely plug the number into excel add back interest and depreciation from their expenses and make sure the NOI meets the bank\u2019s DSCR using their loan amount, rate and amortization. If it doesn\u2019t then get some answers first as to why before going to the lender. Once you show them something they can\u2019t unsee it.", "replies": [{"id": "iuznd3t", "text": "They are not asking for Seller Tax Returns. They are asking for the Property Tax Bills. These are generally publicly available by contacting any assessor/collectors office. This is common and as a Lender it\u2019s part of our normal diligence to get three years RE Tax history , any competent investment sales broker will know this and comply.", "replies": [{"id": "iv0j04w", "text": "No they want the tax return, not the tax bill. You use them to estimate future operating expenses so that an income approach model can be made.\n\nThis is standard procedure.", "replies": [{"id": "iv0lfi3", "text": "I don\u2019t believe this is correct, unless the diligence requirements are different for smaller properties (though if anything I\u2019d think they\u2019d be less stringent).\n\n1) Properties do not have tax returns, the entities that own them do. Properties being acquired with a Loan secured by the Property are required to be bought by new special purpose entities.\n2) Tax basis accounting and actual accounting / modeling of income/returns are completely different processes. A Lender would not use a tax return to calculate future income.\n3) Information within a Tax Return will vary based on the ownership structure of the Seller, which is private and beyond the scope of reasonable diligence (unless acquiring the entity itself).\n3) To model future income you would be asking for  historical Operating Statements, which generally would include RE Tax Expense.\n4) Notice the original comment says \u201cTax Info on the *Building*\u201d not the \u201cEntity,\u201d which would indicate Property Taxes.\n\nHappy to answer any questions. Additionally, I mention acquiring the entity itself as a caveat a few times, which is not recommended as the Buyer would inherit any liens/debt against the Property as well.\n\nSource: Work as a Loan Officer originating $25mm - $300mm Loans at a Life Insurance company.", "replies": [{"id": "iv12cqn", "text": "You're off on this one. The lender doesn't need to ask anyone for tax bills. Those are just readily available online. OP is a layman and didn't use specific language.\n\nI deal with these small mixed use type properties all the time and ask my clients for verifiable operating expense information going back at least three years every single time. Expense comparables are absolutely garbage for this property type. I often receive \"tax returns\" or whichever specific tax form for that ownership entity. \n\nSometimes the property owner refuses to give that information. This is okay too, but I get to state in my report that they were asked for and not received. Leading to the utilization of less reliable market information for determining operating expenses.", "replies": [{"id": "iv1urb8", "text": "I think this about sums it up.", "replies": [], "depth": 6}], "depth": 5}, {"id": "iv1615w", "text": "You're only seeing professionally run properties.  $25MM+ have CPA audited financials.\n\nDorky mom &amp; pop Class D/F properties barely have any financial info. Their financials are sometimes written by hand, often exclude line items including RE taxes paid.  The tax return is the only way to get verifiable income expense info.", "replies": [], "depth": 5}, {"id": "iv1uqcj", "text": "Agree with Fresh03 below. \n\n1. I'm assuming we're splitting hairs here with our verbiage. I assumed the OP was talking about the LLC tax returns. \n2. Sorta, they could apply growth rates to income and expenses to make sure their DSCR is good throughout the loan term. Also, they're really just looking at it for historical performance. \n3. This is probably the difference between your space ($25M+) and where the seller is. Small community banks have draconian underwriting requirements\n4. While true, I think they would ALSO ask for tax bills, I don't think this is difficult to find and I would hope wasn't the reason for the OP to post. \n5. Maybe, we'll see.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iuzey50", "text": "You can likely look up previous years taxes for the property on your county tax website.", "replies": [], "depth": 1}, {"id": "iuzqpuc", "text": "So what they\u2019re really asking for is an operating history on the real estate. Your lender is assuming that the building is held in an LLC (or some structure) as a standalone asset. That\u2019s probably true. But whatever. \n\nThey just want a look at the historical operating statements which are best consolidated in the tax returns of the RE LLC. Also tax filings are less likely to be fudged compared to a random excel or PDF that the seller provides. \n\nThey\u2019re not asking for the seller\u2019s personal W2 or anything like that.", "replies": [{"id": "iv0kz2l", "text": "What exactly are those documents? If it\u2019s held by an individual, it\u2019s a schedule E? What if it\u2019s held by an LLC?", "replies": [{"id": "iv110hv", "text": "If it is held in an LLC, there will be tax returns filed separately from the individual owners' personal tax returns. That is, unless it is a single member LLC, in which case it can flow through the individual's Schedule E.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iv12dcp", "text": "They want the business tax returns for the entity that owns the property. Rent and expenses will be reported on that tax return. Banks structure the typical income producing RE loan with the cash flow from the property as the primary source of repayment, the sale of the collateral as the second, and guarantor (if there is one) support as the third.\n\nBanks size CRE loans to DSCR and have policy requirements for LTV as well (some will have debt yield requirements). They need to have an \"underwritten DSCR\" for the property reporting/analytics/monitoring/regulatory purposes. So, they need the historical property financial statements - likely held on the LLC's business tax return - to derive the net operating income. The underwritten NOI / proposed debt service = underwritten DSCR.", "replies": [], "depth": 1}, {"id": "ivky0lj", "text": "The lender is obtaining this information to accurately underwrite the property. The seller might have received a cash offer but if they send you the tax information, the cash offer was probably low. I would get a full list of all the documents the lender needs at once; and send that to the seller's agent.", "replies": [], "depth": 1}]