Debt Services & Lender Requirements
Today, we continue our discussion on common pitfalls seen in a real estate deal by looking at potential debt services and lender requirement problems. Oftentimes, borrowers will find that they need to borrow money to buy property and that the lender is probably going to require security for that loan.
In a few instances where your net worth is substantial, a personal guarantee may work as security. However, for most people, they will find that the lender will require a mortgage or deed of trust against the property to protect their interest. This provides the lender with the right to foreclose if you fail to comply with the terms and conditions of the loan.
One potential problem buyers can run in to is that lenders may prohibit them from taking out additional loans against the property being used as security. If this language is included in your loan agreement, be aware that your hands may be severely tied in the future in terms of being able to secure more financing for your business if you are planning on using the property as security.
Other things to be aware of:
Next up, mechanics liens and zoning and land use problems…