Refinancing Your Facility
|Copyright 2014 by Virgo Publishing.|
|By: Scott Lee Shabel|
|Posted on: 11/01/2000|
Refinancing Your FacilityLet the borrower beware
By Scott Lee Shabel
In this booming economy, you may be interested in refinancing the debt on your self-storage facility. If you are fortunate, you have contacted one of the handful of mortgage brokers who specialize in refinancing loans to self-storage operators.
Your first concern, of course, is: What interest rate is being offered? And what are the repayment terms? Can you get cash out of the loan? How can you qualify for the loan? These basic loan considerations should only be the beginning of your inquiry. Once you have approved the basic financial terms of your loan, you (and, hopefully, your attorney) will receive a rather voluminous loan package, containing numerous documents drafted by the lender's sophisticated attorneys. These documents contain many traps for the unwary borrower. Buried deep in this documentation are hidden features and charges, as well as restrictions on the manner in which you may conduct your business during the term of the loan.
Even if you consulted with a loan broker to obtain your refinancing loan, remember that he is usually working for the lender and receives his commission only if the transaction is consummated. The broker may not be motivated to negotiate on your behalf with respect to these hidden fees and charges, or the legal pitfalls in the loan documentation. The following is intended to constitute an overview of a typical refinancing loan. It is not--and should not be construed as--legal advice for your particular situation. You can consult with an attorney to assist you in understanding and negotiating the terms of your particular loan.
Your Loan Application
The first step in obtaining your refinancing loan, whether through a broker or directly with a lender, is a submission of your loan application. Warning: This is the most important document in your loan transaction. It is also the most often overlooked. The loan application may be presented to you as a mere formality, but its language--more importantly, what is missing from the application--may serve to undo much of what the borrower seeks to accomplish with the loan.
The borrower is generally required to invest significant sums of money at the time the loan application is submitted, including the expense of appraisals, engineering reports and environmental studies. These expenses can often run tens of thousands of dollars. Before committing this money and submitting your loan application, you and your counsel must be sure that all of the follwing issues are addressed:
Appraisals & Reports
To the extent possible, the borrower should attempt to negotiate fixed amounts, or at least "cap" the fees to be paid to the various appraisers, engineers and consultants to be employed by the lender. In many cases, it may be possible to participate in the selection of appraisers, engineers and consultants.
Review of Loan Documentation
Congratulations! Your carefully negotiated loan application has been accepted by the lender. The lender and its appraisers, engineers and consultants have verified that your facility meets the lender's qualification requirements; and you and your counsel have received the lender's rather hefty loan package and its voluminous legal documentation.
The package will include your promissory note and the deed, trust or mortgage documents securing the loan. Depending on the nature of the transaction, the package may also include a hazardous substance indemnification agreement, a proposed attorney opinion letter, financing statements and escrow instructions. These documents must be carefully reviewed by an attorney to ensure they comport with the terms of the loan application. Your loan documents will invariably contain a clause that states they are the final agreement of the parties. If there is any variance between the terms of the loan and the terms of your final documentation, the latter will prevail. It is not uncommon for the loan package to vary, by inadvertence or design, from the terms of the loan.