Commercial Loans Blog

C-Loans Adds a New Tombstone Feature

Posted by George Blackburne on Fri, Dec 23, 2016

Tombstone.gifTo understand our new feature, you need to understand tombstones.  A tombstone is an annoucement of the successful closing of some financial deal, like taking a company public or closing some large loan or bond issue.  Historically tombstones were placed in financial publications, like the Wall Street Journal, the Financial Times, or the New York Times.

The announcements were rectangonal in shape and oriented in a portrait mode.  They literally looked liked tombstones.  The content was always very dry.  "Goldman Sachs is pleased to announce the secondary offering sale of 2,000,000 shares of Chrysler Motors at $100 per share for a total equity raise of $200,000,000.  Morgan Stanley and Credit Suisse participated in the offering."

The Securities Exchange Commission ("SEC") for many years forbade the public advertisement of securities offerings.  Therefore tombstones were therefore always backwards-looking.  They announced the closing of some securities offerings.  Since the deal was already closed, and any reader of the tombstone could no longer buy a piece of the offering, a tombstone was not considered an advertisement.

 

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So why would an investment banker, like Goldman Sachs in my example above, pay the Wall Street Journal $10,000 or more to publish a tombstone for a deal that was already closed?  The advertisment was not going to bring in new investors for the offering because the offering had already closed.  The offering was already fully-subscribed; i.e., sold out.  Answer:  The tombstone told other motor companies, like GM and Ford, that Goldman Sachs stood ready to raise a secondary offering for them as well.  It also told other investors to call Goldman Sachs if they had investment dough burning a hole in their pockets.

Modernly commercial real estate lenders publish their tombstones online on their home pages, in their newsletters to their clients and brokers, and in the online version of trade magazines, like the National Real Estate Investor or Globe Street.  It is always smart to study every commercial loan tombstone that you can find because by studying what commercial loans a lender has already closed, you will know what kind of new commercial loans that the lender is seeking.  In other words, be sure to read tombstones!  :-)

 

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C-Loans.com has just added a new tombstone feature on our home page.  Ten seconds after arriving on our home page, a series of rotating tombstones will appear.  The one you will see today is for a commercial loan closed by Alicia Gandy, our top producer who we call our Loan Goddess.  You will notice that the tombstone brags about a $650,000 closing of a permanent loan on a strip center in Tulsa, Oklahoma.

 

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If you click on the link that reads, "More Info and a Mini-App", you will be taken to a page that tells you more about this particular lender, in this case Blackburne & Sons Realty Capital Corporation.  You'll see the lender's preferences in terms of loan sizes, loan types, property types, and lending area.  You can also apply directly to this hungry commercial lender by filling out the mini-app.

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Topics: tombstone

Does the TILA-RESPA Rule Apply to Commercial Loans?  You'll Be Surprised.

Posted by George Blackburne on Mon, Dec 19, 2016

TILA.jpgTILA and RESPA are Federal laws designed to give borrowers advance disclosure of the costs of the loans for which they are applying.  Under the new Dodd-Frank regulations, the TILA-RESPA Rule consolidates four existing disclosures required under TILA and RESPA for closed-end credit transactions secured by real property into two just forms: a Loan Estimate that must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application, and a Closing Disclosure that must be provided to the consumer at least three business days prior to consummation.

The question today is whether the Loan Estimate and the Closing Disclosure must be provided on a commercial loan?  The answer is not as clear cut as one might think.  Under certain circumstances, both TILA and RESPA apply to loans secured by commercial real estate, and the two new disclosure statements must be provided.

 

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We have spoken to our California counsel regarding the use of funds on a commercial loan, and the issue turns on whether or not the funds will be primarily used for personal, family, or household purposes or whether the funds will be used a business, commercial, or agricultural purpose.  If the funds will be used for a business purpose, then the TILA-RESPA rule do not apply.  

As a lender, our attorney advised us to request a use of funds letter and to verify that the primary use of funds being received for the loan is going to be used for business purpose. He wrote:

Both the Federal Truth in Lending Act and the Real Estate Settlement Procedures Act specifically exempt business purpose loans (see below for exemption language):

RESPA: 12 CFR 1024.5 Coverage of RESPA

  1. Applicability. RESPA applies to federally related mortgage loans.
  2. Exemptions.
  3. Business Purpose Loans. An extension of credit primarily for a business, commercial, or agricultural purpose, as defined by 12 CFR 1026.3(a)(1) of Regulation Z. Persons may rely on Regulation Z in determining whether the exemption applies.

 

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TILA: 12 CFR 1026.3 Exempt transactions.

The following transactions are not subject to this part:

Business, commercial, agricultural, or organization credit.

  1. An extension of credit primarily for a business, commercial or agricultural purpose.

With regard to closed-end credit applications received by your commercial department which will be secured by real property (including commercial or industrial property or vacant land), the transaction is subject to TILA disclosures if the primary purpose of the loan is consumer (personal, family, household) (12 CFR 1026.19 (e)).  Hellooooo?  Are you paying attention here?  TILA applies, even though the collateral might be an an office building!!!

It will not be subject to RESPA because RESPA applies to ‘federally related mortgage loans’ which are defined as loans secured by a first or subordinate lien on residential real property upon which there is a structure or structures designed principally for occupancy by 1 to 4 families (including individual condo or coop units) or there is or will be located a manufactured home.

The essential question is: What is the purpose of the loan? We respectfully recommend:

At time of application, request the applicant to prepare and deliver to you a handwritten, signed and dated letter which outlines the loan request and how the loan proceeds will be applied. Do not provide a preprinted form for this purpose; the letter should be the applicant’s statement of the loan purpose.

Review the letter to determine if the primary purpose of the loan is for consumer purposes or business purposes. When calculating primary purpose, calculate based on the funds received by the borrower. For example, if the loan amount is $100,000 and the loan fees are $10,000, the direct benefit to the borrower is $90,000. Calculate primary purpose on the $90,000.

If the loan is for a consumer purpose, deliver the appropriate disclosures.

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Topics: TILA

Ugliest Property Pictures in the History of the Commercial Loan Business

Posted by George Blackburne on Mon, Dec 5, 2016

Ugly-1.jpgThis is going to be a very short training article because the Chinese were right.  A picture is worth a thousand words.  Today a mortgage broker submitted the attached picture on his C-Loans.com commercial loan application.

Guys, I have often compared C-Loans.com to a speed dating site.  Like a speed dating event, we allow you to present your commercial loan to scores and scores of lenders in just minutes.  The idea is to catch the right lender lender at the right time with the right commercial loan.

But guys, if you show up for a speed dating event with a dirty shirt, uncombed hair, unbrushed teeth, and smelling like the bottom of a Marine's dirty laundry bag... well, you can't blame the dating service for not finding you the love of your life.

 

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The moral of the story.  Wait until you can take your property pictures on a sunny day!

 

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Topics: commercial loan pictures