Commercial loan financial convenants LOI

[Lin V.]

We just received loan document for refinancing our commercial loan that we do not want to sign, 10 years loan. Our LTV is less than 50% ( yes no risk at all for the bank, and we have top credit score.

We already paid the appraisal, environment fee, wasted countless hours etc...

The texts in LOI: Financial covenants:

-- Min DCR based on actual rents for the first trust deed of 1.25:1.00 based on a 25 year amortization by the end of 2018.

And in the loan doc

---Property is to maintain a 1.25:1.00 Debt Service Coverage Ratio, tested annually.

We would not have paid the fee and sign the LOI, had he included the phrase tested annually.

Please understand that the loan will be for 10 years long, and we are very confident that we will always have fund for the monthly mortgage payment. But we do not want to take even a small possible chance that we may violate DSCR covenants by any amount, no matter how small. We never know if the place will always be fully leased or unexpected expenses come up to cause the DSCR to be lower for that one year.

And the loan doc included this in their ASSIGNMENT OF RENTS

" LENDER'S RIGHT TO RECEIVE AND COLLECT RENTS. Lender shall have the right at any time, and even though no default shall have occurred under this Assignment, to collect and receive the Rents. For this purpose, Lender is hereby given and granted the following rights, powers and authority:"

I am hoping people in BP have some advice. And is it normal practice for Lender to change their language like that?

Thank you

[Mark Creason]

@Lin V.

As a mortgage broker, I have seen language like the DCR requirement. If you are at less than 50% LTV, this would appear to be a non-issue. Usually, when you get under the 1.25 DCR, the lender would do cash flow sweeps to cover the loan. I would ask them if they can change any of the language, but I do think it is common.

Mark