Complete Commercial Real Estate Loan Closing ChecklistLegal Compliance Resource
October 17, 2013 — 1,730 views
One of the most common mistakes that people make is that they believe that the process of closing a commercial real re-state loan and a regular home loan are the same. The biggest difference between the two is the number of documents and inspections that are carried out. This includes corporate documentation of the title and the entity of the purchaser and the buyer. There is lot of litigation required when it comes to these transactions. The closing of the loan is when both parties sit together with their respective legal counsel and sign the documents which transfers the ownership of the real estate property from the buyer to the seller.
Non-Recourse Loan and Recourse Loan
The main difference between these two types of loans depends upon the assets that the lender can seize if the person who is borrowing makes a default in the repayment of the loan. Non-recourse loans are favorable for borrowers, while the lenders prefer the recourse loans as a matter of principle. For both the loans, the lender has the right to seize the assets which have been placed as collateral in order to secure the loan. The asset which has been purchased using the loan will generally be the collateral of either loans. In the case of real estate, the lender will be able to claim and sell the property or house to clear the loan if the borrower is unable to make regular payments.
The difference arises when there is still money that is owed after the collateral assets have been seized and sold off. In the case of a recourse loan, the lender has the right to go after the other assets that the borrower has. In the case of a non-recourse loan, the lender will be at a loss if the collateral asset is resold at a lower price than what was owed. Borrowers may be able to walk away with an amount that is less than what they owed but they will have a low credit score when it comes to taking another loan.
Documentation is important when it comes to commercial transactions as it is a part of good business practices and can cause a lot of litigation if it is absent. It is important to have all the documents read the day before the closing of the transaction takes place. There is no need to negotiate the documents on the day of the settlement as this may restrict the client's bargaining position. Such documents that are required for closing the transaction includes the signing of all documents as well dating them, filling up the GST registration numbers, addresses for fax and service numbers and registered instrument numbers. There should also be copies of this agreement when the closing of the transaction is taking place. After the closing of the transaction has taken place there are some items that are required to ensure that it is complete. Mortgage discharges, delivery of third party directions and notices and post-closing undertakings.