Best excuse to decline funding a loan

[David Oberlander]

I've heard of many reasons to decline funding a mortgage over the years but this one is a new one to me.

From a HARD MONEY LENDER not a bank. You'll recognize the name when I post it (not now) as they advertise here on BP. When I pull up the list of HMLs for Florida they pay to be near the top of every page. Their reason for declining was "The subject property is a legal non-conforming use that cannot be rebuilt to it's current configuration and density." The property is not a true duplex, it's 2 separate houses built on the same lot in the 1950s. It's always been used as rentals with only 2 years out of the past 25 being homesteaded (That requires owner-occupancy). It's a total of 3 beds and 3 baths. The present mortgage balance is 25% of the value and we wanted to re-finance to 50% and use the excess cash on another property. It would also be our 4th loan thru this HML. It presently NETS $500 a door (that's no typo).

Now, let's go over their excuse. Rebuilding the property requires it to be 85% destroyed by fire or flood. We have both insurances and if it was destroyed the insurance would pay off the morgage and leave us with $50K.  but if the larger house was destroyed that would only be 66% (and the smaller house 33%). So they would be paid off if the property was destroyed.

 But if I wanted to rebuild the property I could put up a 5 bed/ 5 bath house worth over $400K. Three houses like that went up this year on the next block and 6 more are under construction one block north or south of the is property (same neighborhood).

They won't be the first HML to lose my business. I just don't like the idea of hitting up family and friends for private money. So fellow BPers what do you think? Do you have a bigger BS excuse for having a loan declined?