Archive for Real Estate Mortgages
Real Estate Investing: Another Apartment Purchase This Time with a Bank Approved Wrap!
Posted by: | CommentsGreetings from the metropolis of Cedar Crest, NM!
The Bank Allowed What?
Wow…has is been a long time or what? I have been so busy with a real estate class (six weeks) and purchased an apartment building within the same time frame. Just plain crazy so a lot of things got neglected…especially this blog. Looks like we have another apartment building in the works (thanks to KB Realty)….things are looking busy for the next few months…at least I hope!
Anyway….
There is one thing I never heard of when it comes to investing… A Bank Approved Wrap. BUT this one thing is a HUGE deal. I have done several wraps before…..but never a bank approved wrap. Now…remember…a wrap is when you “wrap” an existing mortgage with a brand new mortgage. Read more about wraps HERE.
So what is the big deal? Well, usually on wraps, there is always a small risk that the loan can be called due to the fact that the asset has been sold yet the loan is still in place. This is a small risk because banks usually do not exercise the “due on sale” clause call if the loan is in good standing. In other words, the payments are still coming in on time. But…there is always a chance. In any case, when we first approached the seller, the seller did a “no no” and asked if the lender if it would be okay to wrap the note. Surprisingly, the lender said “yes”…..at first I thought there was a mistake….and I just felt someone misunderstood something. But….I was wrong. So, in the last week of December, we closed on an apartment building with only about 6% into the deal (commissions and closing costs). No joke!
I even talked to my lender friends….they all NEVER heard of of such a thing….especially in commercial.
The beauty of the deal was that it was 80% occupied and still cash flowing. The issue with the property was mismanagement. Bad management with out-of-town owners is a great formula for opportunity.
Now…I have to give credit where credit is due. Preston from KB Realty found this deal and made it happen. James, a.k.a. “J” our attorney, worked hard during Christmas to get things right. Having solid relationships was the only way to get this done….but I digress.
There were problems with the deal….more specifically, timing. The sellers wanted to close before December 31, 2009….which only gave less than 30 days to close. Now…. trying to close in 30 days during the holidays is impossible….so I thought. I told Preston “there was NO WAY we could do it.” Due diligence, attorneys, inspectors, banks, title companies….are hard to round up to work on a project anytime of the year….especially during the holidays….Forget about it! Well…Preston pushed and pushed and the rest is history.
My partners and I learned something…..we don’t know everything…but thinking we do can lose us opportunities.
Thanks to Preston…David….J….
On to the next project!
Commercial Investing: Mortgages Defined
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Hey...Dude...What mortgage are you getting?
The real estate investment arena is filled with its own language and often features terms from property law, banking concepts and feudal times. As a continued segment to help you navigate the real estate investment lingo, we will be periodically posting commonly used real estate investment terms and definitions provided by many sources including www.investorwords.com and www.creonline.com.
This posting will focus on types of mortgages. A mortgage is a financial and legal instrument that details a loan given to a borrower (mortgagor) to purchase real estate. In exchange for the loan, the lender (mortgagee) receives a lien on the property as collateral.
Assumable Mortgage
An assumable mortgage is a financial and legal instrument that can be transferred from the original borrower to another future 
buyer without changing the terms. The future buyer assumes all obligations for the debt and may be subject to background checks as well as assumption fees as the mortgage cannot be transferred without consent of the lender. Assumable mortgages by definition do not include a “due on sale clause.”
Chattel Mortgage
A chattel mortgage is a financial and legal instrument that details a loan given to a borrower to purchase real estate. However, instead of the lender receiving a lien on the property, a lien on other non-real estate assets is used for collateral.
Closed-End Mortgage
A closed-end mortgage is a financial and legal instrument that clearly specifies the underlying loan may not be paid before the end of the loan term. Closed-end mortgages also require the bond holder’s permission if the underlying collateral is repledged.
Commercial Mortgage
A commercial mortgage is a financial and legal instrument that provides a loan for real property used for business.
Commercial Mortgage Backed Security (CMBS)
A commercial mortgage backed security is a legal interest secured by commercial mortgages. A diverse amount of loans for various property types and sizes are pooled and sold to investors.
Conventional Mortgage
A conventional mortgage is a legal and financial instrument that has a fixed interest rate that does not change throughout the 
loan. Conventional mortgages are not insured or guaranteed by the government.
Depressed Mortgage
A depressed mortgage is a legal and financial instrument with a loan market value lower than par value.
Growing Equity Mortgage
A growing equity mortgage is a financial and legal instrument that has increased monthly payments but has a fixed interest rate.
High Ratio Mortgage
A high ratio mortgage is a legal and financial instrument with a loan amount greater than 80% of the mortgage property’s value.
Hybrid ARM
The hybrid ARM is a combination of a fixed rate mortgage and adjustable rate mortgage. This financial and legal instrument provides that interest rates on the mortgage are stipulated and unchanging for a fixed period of time. After that period has expired, the interest rate rises to market rates or to a rate cap detailed in the agreement.
Mortgage
A mortgage is a financial and legal instrument that details a loan given to a borrower (mortgagor) to purchase real estate. In exchange for the loan, the lender (mortgagee) receives a lien on the property as collateral.
Mortgage Derivative
A mortgage derivative is a legal security that provides investor income from principal and interest payments on an underlying pool of mortgages. Examples of mortgage derivatives include mortgage-backed securities and mortgage pass through securities.
Mortgage Pass-Through Security
A mortgage pass through is a legal security that features a pool of loans on residential properties. The principal and interest payments are passed through to the investors on a monthly basis. Examples of issuers include Freddie Mac and Ginnie Mae.
Reverse Annuity Mortgage
A reverse annuity mortgage is a loan secured by the equity a borrower has accumulated in the property, by which the borrower receives scheduled payments from the lender or annuity. Reverse Annuity Mortgages are often used to increase liquidity.