Commercial Loans Blog

Commercial Loan Stifled By a Lis Pendens

Posted by George Blackburne on Tue, Jun 13, 2017

Watering hole.jpgMost commercial real estate loans - other than apartment loans - have a balloon payment due in just 5 or 10 years.  If you're a commercial mortgage broker or a lender, this is a very wonderful happenstance.

If you're a commercial real estate investor, however, this balloon payment can be an object of absolute terror.  What if your commercial loan balloons during a horrible recession?  It's like the only watering hole in 50 miles being infested with hungry crocodiles.  Sooner or later you have to drink. recently closed a $6.5 million refinance on a health club.  The loan was funded by one of the many, voracious (notice the poor gazelle in the above picture) credit unions participating in our free commercial mortgage portal. The good news was that commercial real estate right now is enjoying a bull market.  Phew.  The bad news was that the holder of just a 5% membership in the LLC that owned the property had filed a lis pendens against the property.

A lis pendens (pronounced: lis pendenz) is a formal notice, filed in the county where the property is located, that a legal action action is pending against the property.  Because a lis pendens appears as a lien against the title of the property, the existence of a lis pendens effectively makes it impossible to sell the property or refinance it.


Missed Love.png



Grandpa and Grandma Blackburne identify a lovely 3,500 ranch style house within walking distance of their son and granddaughter.  They love-love-love this house, so they put in an offer.  The seller accepts the offer in writing.  The market is hot, and a week later the seller receives another offer to buy the same house for $35,000 more.  The seller notifies the Blackburne's that he is repudiating their earlier contract.  He offers to give the Blackburne's $7,000 for their trouble.

But the Blackburne don't want more money.  They want this particular house because it is only one block from their son and granddaughter.  Spoiling their granddaugher is far more important than money.

Therefore the Blackburne's file a lawsuit for specific performance against the seller, and they file a lis pendens against the property.  Specific performance is an order by the court to perform some contractual duty, in cases where money damages would not be adequate remedy.  In this case, the Blackburne's were seeking a judge to order the seller to sell the property to the Blackburne's and not to the other buyer.




Displayed only for its humor value.  :-)  My next funny pic will roast Donald Trump.  Now back to the Blackburne's attempt to become Raymond's parents, as in Everybody Loves Raymond.

The second buyer is a wealthy Chinese national wishing to buy a home for his son and daughter-in-law.  He is an all-cash buyer, and he figures that the Blackburne's will eventually tire and settle their suit for some cash.  Therefore the seller completes the sale of the house in question to the Chinese dad, subject to the the lis pendens lien.


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Unfortunately for the Chinese father, the Blackburne's are insistent of being able to walk over, appear at Tom's house uninvited, and then criticize Tom's cooking.  The Blackburne's refuse to settle, the case goes to trial, and the Chinese family is ordered to hand over both title and possession of the house to the Blackburne's.  Before you feel sorry for the Chinese dad and the young Chinese couple, the lis pendens put them on notice of the Blackburne's lawsuit.  They chose to ignore it.




There!  Now people on both sides of the aisle hate me.  Ha-ha!

Back to the health club story:

The holder of that 5% ownership of the health club was unhappy with his return on his investment.  He figured that by filing the lis pendens, just when the LLC desperately needed to refinance its past-due balloon payment, he could squeeze a preferential return or a buyout from his "partners".   

Now here is what shocked me.  The other members of the LLC filed a countersuit and a motion to expunge the lis pendens; i.e., make the lis pendens disappear from the title!  I've been a real estate attorney for twenty-five years, and I had no idea that a lis pendens could be expunged; ie., peeled away, in this manner.  Hooray for the good judge!

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Do you have a complicated title issue?  Do you need a commercial lender that will work with you?

Do you need a purchase money lender who will actually go to 75% loan-to-value? Do you need a lender who will allow the seller to carry back a second mortgage? Does your client have a balloon payment coming due on his commercial property? Has your bank offered him a discounted pay-off? Does your borrower have less-than-stellar credit? Is your client's company losing money? Is your borrower a foreign national? 

Do you need a non-recourse loan? Do you need a commercial loan with no prepayment penalty? Is your client's commercial property partially vacant? Do all of your commercial leases run out in the next 18 months? Do you need a lender who will allow a negative cash flow? Do you need a lender who will also look at the borrower's global income - income from salaries, other invest-ments, etc.? Do you need a loan against a portfolio of single family homes?


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Banks and credit unions are getting hot to make commercial real estate loans again.  This is a superb time to learn commercial real estate finance and make your living as a commercial mortgage banker.  You can pay $120,000 for a liberal arts degree or just $549 to learn how to become a commercial mortgage banking professional.  No college degree is required.


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No one ever listens to me, but I have been telling my readers that the real commercial in commercial real estate finance is in loan servicing fees.  My company currently enjoys $1,040,000 in loan servicing fees annually.  The fastest and easiest way to build a loan servicing portfolio is to become a hard money lender.


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Topics: Lis pendens

What Is Creative Office Space?

Posted by George Blackburne on Fri, Jun 2, 2017

Creative Office Space.jpgGeorge Smith Partners is one of the oldest commercial mortgage banking firms in the country. They had already been in the business for decades when I was just a puppy.  They are also pretty good marketers.  They publish a wonderful weekly newsletter called FINfacts.  In this week's newsletter the mortgage banking firm had a number of tombstones, one of which justifiably boasted of a $35 million closing:

"George Smith Partners secured $35,000,000 in capital for the conversion of the Norton Building, located in the Fashion District of Downtown Los Angeles. The capital is going to be used to convert the existing mixed-use asset into creative office space with ground floor retail."




Huh?  What on earth is creative office space?  I had to look up the term because it was brand new to me, although it has apparently been a hot buzzword in the commercial real estate development and leasing industry for several years.


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The term, creative office space, is a slippery little devil, and I had to read five long articles before I could get a handle on it.  There was no single definition that jumped out at me, so the best I can do is to list some of the characteristics of creative office space:

  1. Perhaps the best way to define creative office space is to say what it is not.  Gone are the days where an office consisted of a reception desk and a number of traditional office cubicles for the employees.  Cubicles can be very solitary and lonely, and they’re definitely not the most encouraging of environments in which to spend nine hours a day.

  2. Creative office space allows flexibility about where you sit and how you work.  Cubicles are so 2001. These days it’s all about an open plan office. Not only does an open plan offer a more welcoming environment, it can also increase communication among colleagues.

  3. Creative office space may feature comfortable chairs and couches arranged in a circle to encourage collaboration.  Creative office space may also have several conference tables set up for short, impromptu meetings among workers.  There will also be plenty of private work stations for when quieter work space is needed.

  4. Creative office space will often enjoy colorful and pleasing wall colors, hardwood floors, comfortable upholstered chairs around a coffee table, and flowers displayed throughout.

  5. Notwithstanding the above, open space, without ceilings and flooring, (think: warehouse loft) is often found in creative office space.

  6. The most important characteristic of creative office space is that it is office space designed to be as comfortable as a home.  After all, workers spend much of their lives in the space.  When talking about creative office space, it is common to use the term, "Bring life to work."
  7. Co-working spaces are gaining traction as the number of independent contractors and freelance professionals continues to rise. According to a study by Intuit, it is estimated that by 2020, 40% of the American workforce will be comprised of such independent contractors and freelancers. Going beyond the traditional “executive suite”, these co-working spaces are about creating a community to collaborate.

  8. Lastly, successful creative office space buildings will often offer such amenities as fitness centers, bike rooms, conference centers, and tenant lounge areas.  They also incorporate outdoor spaces, such as rooftop decks or grass lawn areas, in order to create a more residential feel.  Pets are even sometimes allowed.  Such space strives for a better, more productive, work-life balance.


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You can pay $120,000 for a liberal arts degree or you can pay $549 for a nine-hour course that will teach you the profession of commercial real estate finance.  The course includes marketing, underwriting, packaging, placement, and fee collection (includes both a fee agreement and 90 minutes of video training on fee collection).  Heck of a course.  


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I keep telling you guys that the real money in the mortgage business is in loan servicing fees.  My own firm (I own 100%) earns $1,040,000 per year in loan servicing fees whether we close any new loans or not.


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Topics: Creative Office Space