Sequence of Activities for Potential Loan Transactions

By Dan Harkey

Participants:

?·????? Buyers, sellers, borrowers, real estate agents, mortgage brokers or agents, and lenders who will approve and fund the loan.

·????? The willing buyers (borrower) and sellers are the fundamental principals in a loan transaction. They, along with the lender(s) making the “purchase money” loan, ?are the catalysts that precipitate the event of a loan closing.

·????? The agents are the people who work for or on behalf of the buyer and seller or the borrower and lender. The agent is not a principal party.

·????? If a borrower signs the letter of interest and the loan is in processing, the participants include the loan processor, underwriter, loan closer, escrow officer, title officer (escrow and title are usually combined), appraiser, possible environmental engineer, Insurance agent or company, and association management.

·????? The loan processor is pivotal in coordinating with the participants during the processing phase. Their responsibility is crucial as they combine all the facts and third-party reports, enabling the lender to make an informed credit decision. This coordination provides a sense of transparency, reassurance, and confidence in the process.

·????? The loan lending process has many moving parts, requiring professional practitioners, standard and best practices, and sometimes unintentional substandard practices. Unintended consequences do occur frequently.

·????? Some transactions are more complex and require higher service providers and high-level subcontract service providers.

·????? Third-party vendors are separate and distinct entities for the borrower and the lender involved in the lending process to facilitate the closing.

Initial inquiry:

·????? As the procuring loan broker, your role is pivotal in initiating the potential loan transaction. Their primary responsibility is facilitating the process and ensuring all necessary steps are taken to secure the loan. This includes an inquiry with the prospective borrower to obtain all the material facts. Expertise and cooperation are highly valued and indispensable in this process.

·????? The loan agent or broker, as the procuring loan broker, collects data from the prospective borrower. They will discuss the type of property, address value, loans, protective equity, the purpose of the loan, payment plans, and exit strategy.

·????? Is there sufficient protective equity above the lien to satisfy the lender's requirements? Protective equity, which refers to the portion of the property's value that exceeds the loan amount, is a crucial factor in the approval process—for example, a 65% loan and 35% protective equity. The borrower must have adequate protective equity because it determines the borrower's financial stability and ability to cover the loan amount in the event of default.

·????? The preliminary value determination procedure is a critical but non-negotiable step in the loan transaction. It's generally based on online inquiries like RedFin and Zillow or comparables available to substantiate the value.

·????? All value determinations at the beginning of the process remain subject to obtaining a third-party independent appraisal during the processing period.

·????? If the transaction is a commercial property, the borrower must also pay for a Phase 1 environmental site assessment.

·????? A few lenders will not require an appraisal, do their internal valuation, and accept a limited phase 1.

·????? If required, Early discussion about the appraisal requirement and Phase 1 environmental site assessment is crucial. This ensures that everything is done with a clear understanding, preventing any surprises for the borrower and ensuring they are fully prepared and informed about the process.

·????? Will the net proceeds of the new loan pay off the debt that will, reduce their outgoing expenses, and increase their cash flow?

·????? With the assistance of the real estate agent and the borrower, the procuring broker should actively calculate improved cash flow as part of a submission. It is important to discuss whether the new loan improves the borrower's financial circumstances or provides an interim period to fix problems and regain economic stability. Early in the conversation, the borrower understands they must pay for an appraisal upfront

·????? In Outlook or other database programs, set up a lead file using the address with the agent’s name for reference. This file serves as a centralized depository for all relevant information, making it easier to track the progress of the loan application.

·????? Request the borrower to email all the required exhibits for the loan transaction. This will allow you to place them in the designated digital file efficiently, eliminating the need for cumbersome paper files and ensuring a streamlined process.

·????? Go to Outlook, look up the property, and set up an email to yourself. Include 2 or 3 references, such as Zillow, Redfin, Realtor, etc., and send the email to yourself to place in your lead file. This will give you an idea of the property's condition, an estimate of its value, and a physical description.

·????? Obtain a property profile from your chosen title company.

·????? If the borrower is an entity, look them up on Google and the Secretary of State's business search. This research shows that their entity is registered to do business in California.

·????? If the borrower is an individual, look them up on Google and LinkedIn.

Could you place the data in the lead file?

·????? If the property is in another state, look up Judicial vs non-judicial foreclosure.? Many lenders only make loans in non-judicial states.? A few exceptions exist, like Florida and Texas, if the borrower is an entity.? Some states provide for both methods.

·????? The bare minimum documentation for a loan transaction is a completed application, a recent home loan payment statement, and three months' bank statements.

·????? The loan is a second trust deed. Ensure you understand whether placing a second lien on the property is lawful.

·????? On single one-unit to four units, you can place a second lien as a matter of law.

·????? An exception may be if the first trust deed is in a prior owner's name and not the current owner's.? In that case, you may want to have it passed by your attorney.

·????? You must review the documents on units of five or greater and all commercial, industrial, and land.? The prohibition for placing a junior lien on the property will be in the deed of trust or the loan agreement. The deed of trust is a recorded instrument, but the loan agreement is not. Sometimes, the prohibition only appears on the loan agreement, so a copy is not readily available as a recorded instrument. You must request it from the borrower.

·????? If the borrower is an individual and has a business, then obtain three months' bank statements for both the borrower and the company.

·????? The key to having a business and personal account is to figure out the trail of cash flow. Sometimes, a written explanation from the borrower is necessary.

·????? All commercial properties should go to a geo-tracker to determine if the property or properties around it may be contaminated. Download the summary and place it in your digital loan file.

https://geotracker.waterboards.ca.gov/map/

Setting up a professional summary to be sent to a prospective lender:

·????? Your role as the procuring broker is to answer all questions and concerns about the proposed transaction and present all material facts known in a written format called an “executive loan summary.”

·????? Name of the procuring broker and the desired fee.

·????? The description of the property, condition, income, and value.

·????? The exhibit flow should include pictures, a location map, and a property description.

·????? Express the positive attributes of the loan transaction.

·????? Secondly, describe any weaknesses.

·????? If there are more than 5 or 6 exhibits, then send two or three emails with the exhibits. In most cases, there is insufficient computer memory to transfer large amounts of data unless you use a program like LockBox.

·????? Email your executive summary of all your exhibits to the lender and follow up two days or so later.

·????? Expect questions and obtain information for the lender to make an informed decision.

I hope you're able to find value in this article.

Thank you

Dan Harkey

?

?

?

?

?

?

?

?