Question
This chapter deals extensively with the use of secondary financing to get real estate deals done. However, the use of various types second mortgages is
This chapter deals extensively with the use of secondary financing to get real estate deals done. However, the use of various types second mortgages is much more prevalent in acquiring 1-4 homes than on commercial properties. While various state statutes prohibit first mortgage lenders from forbidding secondary financing, these regulations do not apply to commercial properties. On most commercial mortgage documents, the express written consent of the first mortgagee is required prior to encumbering the property with additional debt.
This now presents a conundrum. Presumably the market is being allowed to establish appropriate guidelines for total debt/value and debt service coverage ratios on 1-4 homes owned by supposedly less sophisticated buyers, but on mixed-use properties - where the buyer is presumed to have a greater level of sophistication, the safeguards are in place.
Do you think that a first mortgage lender should continue to have the ability to control the commercial deal if the debt is current?
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