All Forum Posts by: Scott Price

Hi Karyn, I'll PM a recommendation to you as well.

Best Regards,

Scott

Interesting scenario, Curtis.  That could be a win win if the discount is significant enough.  I'll plan to check on it to determine if that would help them as well.

Hi Derek, yes he did offer DIC policies but they are actually even more expensive since they are even broader and also cover landslide, mudflow, flooding, etc.

Thank you for sharing those good ideas and theory, Bob.

I have actually contacted two different real estate attorneys that I have worked with in the past.  One said that they were within their contractual rights even if there was effectively no precedent and it didn't make sense otherwise.  The other took a different approach and said to hire an attorney in the local county to get a temporary restraining order in place against the insurance requirement; then the lender would have to prove the basis of their highly unusual requirement.  The latter attorney also said to contact the president directly.  I have contacted the president's assistant today, who has been helpful so far and she is looking into it.  More to come on that.

Interesting idea to offer to buy their note at a discount (above what they paid for it).  It is another possible resolution option to keep in mind.

Thanks for the support and inputs, Andrew, Brie, Ryan, Tapan, Zach, and Kevin.

Ryan, I'll reach out to you off-thread.

Kevin, yes agreed that due to the open-ended and deliberately vague nature of the original lender's CYA clause it is "permissible".  Nonetheless, having the game suddenly changed significantly 9 years into a loan is quite aggravating.  The fact they don't care that they are obliterating cash flow and reserves also is self-destructive on their part.  And the total lack of any agreement on this policy from other lenders and seismology experts just makes their approach that much worse still.

Hi Dave, the property is in Oak Harbor on north Whidbey Island.  I have only contacted my personal insurance agent so far regarding insurance options.

Thanks,

Scott

Hi, first a request: Do you know of a reasonably priced earthquake insurance provider (that covers Washington state)?

Second, a cautionary tale: I have owned a 29 unit apartment complex for 9 years, always paying the mortgage faithfully and at a high interest rate (what were current rates at the time) that the lender should be quite happy with nowadays.  Over those 9 years, the note was sold once and then sold a second time.  The new note holder, a large firm out of Dallas, recently and totally unexpectedly gave one month notice that they require my property to have earthquake insurance.  I have asked multiple highly experienced investors, brokers, lenders, and even 6 seismology experts in the area if they had ever heard of a lender requiring earthquake insurance for the entire area north of Seattle.  Literally none had ever heard of this situation.  The seismology experts had never heard of the note holder's classification system.  Everyone has been flabbergasted.  The additional insurance cost is more than the positive cash flow of the property, but this new note holder doesn't care.  When asked multiple times what is the basis of their policy, why they are forcing implementation of something no other reputable lender requires for the area, and other related questions, they repeatedly decline to answer except to circularly say it is their new policy.  Although the loan documents definitely do not require earthquake insurance, the note holder is using a vague "weasel clause" that says "Borrower shall keep the improvements now existing or hereafter erected on the Property insured by carriers at all times satisfactory to Lender against loss by fire, hazards included within the term "extended coverage", rent loss and such other hazards, casualties, liabilities and contingencies as Lender shall require and in such amounts and for such periods as Lender shall require."

So, the cautionary tale here is that those vague weasel clauses that are prevalent throughout lender-favored loan documents can come back to bite you in a big way, especially when in the hands of a note holder blazing a new path that nobody else agrees with but they have the weasel-clause-endorsed right to do so.

I will need to look hard into refinancing. Although the property cash flows, the market price has unfortunately declined for local tertiary market reasons and it will require a large out of pocket amount to get back to a LTV ratio for regular financing again (currently at about 86% LTV). The out of pocket down payment expense is the bigger concern about getting away from under this rogue note holder.

Any ideas on this unprecedented situation would be appreciated as well.

Thank you.