Buying a commercial mortgage loan is NOT rocket science. There are, however, some very basic aspects of a mortgage loan that should be included or addressed in the purchase of the loan. I list a few of them below. But before we get to them, ask yourself the question that scientists ask all the time: “what do I need to learn about this?” Rocket science draws thousands of people just to watch it happen – because of the wonder, awe and even respect for the event.
The tips below should encourage you to have a little wonder, awe and even respect for this topic. And to even investigate and understand some of the key functions and tasks involved in the servicing of commercial mortgage loans. Increasingly, loan sale agreements simply list the loan documents, the outstanding balance and confirm that the seller can legally sell the loan. Often they do not address these basic topics:
- Environmental reports: a commercial mortgage lender needs a “clean” report (prepared by an expert) in order to guard against certain types of environmental liability. Getting the ability to rely upon the report is important.
- Insurance: obtaining copies of the insurance policies or certificates (required under the loan documents to be maintained by the borrower) will be very, very important if . . . a weather event or other insurable something occurs.
- Ongoing Lawsuits: stepping into an ongoing lawsuit will be costly. Costly.
- Loan Servicing History: get the data tape. Avoid the “he said, she said” situation; and the costly headache in having to sue the seller because you need the information.
Ask yourself this question: if the loan seller’s servicing group would be fired if, in servicing the loan, they neglected to track and monitor an item, then shouldn’t I at least look into these items as part of my decision to buy the loan? And even ask the loan seller to include the item as part of the sale? Embrace your inner geek. Be a mortgage scientist. Please share your own tips and perspectives below.