Originally published in Blakes Bulletin on Commercial
Real Estate, September 2009
With recent dramatic changes in the lending market and lending
criteria, the purchaser's ability to finance the transaction
has taken on heightened importance and may require greater
creativity on the part of both the vendor and the purchaser. In
terms of the purchaser's ability to assume existing mortgage
financing, the consent of the mortgage lender may no longer be
automatic, the time required to obtain such consent may be longer
(particularly when a servicer under a conduit is involved), the
release of the vendor is unlikely, and additional guarantees or
changes to certain covenants may be requested by the mortgage
Existing Mortgage Financing
In preparing the property for sale and the possible assumption
of existing mortgage financing, the vendor should review the
existing mortgage documentation carefully and, in particular,
identify any due on sale provisions, consent requirements,
provisions dealing with fees payable upon assumption and prepayment
provisions. Any cross-default or cross-collateralization provisions
would have to be negotiated out or replaced with other forms of
security. If the existing mortgage is to be prepaid, the vendor
should consider whether any prepayment penalty can be factored into
the purchase price. If the prepayment penalty is too high, the
vendor should consider offering the mortgage lender replacement
security on another property or properties in exchange for a
discharge. As the process of putting in place replacement security
requires considerable lead time, a temporary cash escrow
arrangement could also be considered. If the existing mortgage is
to be assumed but carries a high interest rate, the vendor could
consider an interest rate buy-down with the mortgage lender (or
factor the economic effect of such a buy-down into a purchase price
adjustment with the purchaser).
Vendor Take-Back Mortgage
The vendor may also wish to consider creative financing
techniques that could allow the purchaser to complete the
transaction notwithstanding that loan-to-value ratios create a gap
between the amount of the purchaser's equity and its available
financing. One of the scenarios that could be considered is having
payment of some or all of the balance of sale proceeds secured by a
mortgage on the property given by the purchaser in favour of the
vendor. Where there is already existing mortgage financing on the
property that is to be assumed by the purchaser, the existing
mortgage documents must be examined to ascertain whether
second-ranking security is prohibited and whether there are any
conditions relating to the granting of such security. The vendor
must also consider the elements of any inter-creditor or
subordination agreement that may be required by the existing
mortgage lender or otherwise entered into.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.
Emotional culture is influenced in great part by the mindset and actions of leadership, although employees also play more of a role than they may realize in creating the culture that exists in the group.
The session will be led by Dr. Robert Brooks, an award-winning author and psychologist. In his presentation, Dr. Brooks will describe the mindset and realistic practices of leaders and staff that help to nurture and sustain a culture characterized by positive emotions, satisfying, respectful relationships, a sense of meaning and ownership for one’s work, and enhanced job performance. Examples will be offered to illustrate strategies for developing a positive emotional culture in an organization.
Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.
Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).