Commercial Loan "Events of Default": LLC member buyout

[Michael S.]

I have been reading some commercial Deeds of Trust in my spare time (I need to get some more exciting hobbies!) and I was surprised to discover that it is common for the lender to consider basically any change to the LLC or ownership entity as an element of default. For instance:

-"Dissolution of LLC, even if election to continue is made"

-"Any member withdraws from the LLC"

-"Any assignment for the benefit of creditors"

So, am I correct in understanding that anytime someone buys out someone else in an LLC, they are risking the bank accelerating the note? Also, even though the multiple-member entity may have charging order protection, if one member's "dividend" is assigned to a creditor as the result of legal action, again the lender can accelerate the note and take the property? That seems a bit excessive. Is this similar to the due on sale clause for residential mortgages, where the legal contract allows the bank to take the property but rarely actually does?

[Joel Owens]

Commercial lenders have boiler plate documents for loans.

Part of purchasing is reviewing the loan covenant and documents the lender is presenting. Lenders generally have a charge of 3 to 5,000 on the bank side for their attorney fees to do the loan.

Now if you want to change any language with your attorney and resend to the bank's attorney be ready to drop another 5k to 10k in legal fees. Lenders say they will not change anything but that is not true in many cases they will change some things.

You have to decide if the issue is big enough in loan docs to pony up the extra money to negotiate the loan docs more.