Perhaps some clairity on why Coops and LLC are not a mortgable entity | <– Date –> <– Thread –> |
From: Rob Sandelin (floriferousmsn.com) | |
Date: Sun, 7 May 2006 13:56:36 -0700 (PDT) |
After reading my previous post on this topic I realized I was assuming a lot of prior knowledge. So, to the basic points of the lending process. When you build a cohousing devleopment all at once, you get a construction loan to cover the costs of the construction, minus the upfront planning costs that you have already paid. Once you have completed building your community, you need to convert your construction loan to mortgages. The vast majority of lending for mortgages is done between a lender and a home buyer, it is an individual contract that you sign which you agree to pay a certain amount over a period of time. During the mortgage time period, the bank technically owns your home, and after 15-30 years you pay off the loan, then the title transfers back to you. If the individual owner can not pay their mortgage the bank forecloses on the home, and resells it, thus getting their money back. Condominiums are the most common format for cohousing private home ownership which banks fund. In a coop or LLC ownership, the bank signs a contract with a legal entity for the mortgages of ALL the units. The entity is responsible to make the payment each month for ALL of the units. If an individual owner goes bankrupt and can not pay their mortgage, the group must make up the difference to cover the unpaid mortgage share or EVERYBODY loses their home as the bank would foreclose on the entire project, not just the individual unit. Obviously banks do not want to foreclose, and especially on an entire 30 unit development so they write in all kinds of clauses and such into the group mortgage, the most common being exorbitant interest on unpayed balances. An LLC as a mortgage owner also complicates things because, depending on state definition, LLC's can have many of the protections of a Corporation, which would complicate banks abilities to foreclose. With any given lender there are loan specialists who scrutinize loans for several factors which favor the banks. A clear foreclosure/resale path is a key element loan executives consider when examining loan applications. Is the property worth what it is being loaned, can that money be recovered easily and quickly should the loan default? Selling an invidivially owned unit in a development is pretty straight forward. Selling an entire development, is much less attractive. In order to have money to lend, banks bundle up and resell their loans to other financial groups which is often called the secondary loan market. This frees up captial for them to be able to make more loans. FannyMae is a federal/private banking partnership that creates loan markets and makes the federal rules for the reselling of loans. Loans which are unique or held by individual banks and not resold are called portfolio loans. The federal government, in response to the savings and loans disasters of the 1980's placed severe restrictions on the percentage of portfolio loans that banks insured under FDIC can hold. Last I heard, 1.5% of the banks holdings is all that can be held as portfolio loans. Portfolio loans are often very diversified in order to spread risk and return. One of the largest local banks in Washington State, Washington Mutual, limits their portfolio loans to $500,000 each, and it takes the personal approval of the Exec Vice President of the company. So the bottom line of all this: banks are usually unable to take on coop loans, and even coop loan speciality banks have upper limit amount restrictions. Last I heard, the National Coop Bank only will lend up to $3.5 million dollars. Since most cohousing projects are much more costly than that, it requires finding other funding sources. LLC's are used as ownership entities for construction loans and the contract for the construction loan requires the loan to resolve into individual mortgages. What you philosophically want to do as a coop is support a cooperative ownership model that is inline with your cooperative ideals as a community. Unfortunately, in the State of Washington, and many western states, local lenders are not willing to loan coops the kind of capital a 30 or more unit housing project needs. There are many smaller coops, the largest I know of personally here is 12 units, which came in under $2 million dollars. Rob Sandelin Naturalist, Writer The Environmental Science School http://www.nonprofitpages.com/nica/SVE.htm ><((((º>`·..·`·..·`·...><((((º>...·`·..·`·...><((((º>.·`·..·`·...><((((º>.·` ·..·`·...><((((º>·.. ><((((º> ·`·..·`·...·..·`><((((º>.·`·..·`·...><((((º>.·`·..·`·...><((((º>..·`·..·`·.. .><((((º>·.. ·`·..·`·....·`·..·`·...><((((º> -- No virus found in this outgoing message. Checked by AVG Free Edition. Version: 7.1.392 / Virus Database: 268.5.5/333 - Release Date: 5/5/2006
-
RE: [C-L]_ LLC vs co-op? Maura K. Deering, May 6 2006
- Perhaps some clairity on why Coops and LLC are not a mortgable entity Rob Sandelin, May 7 2006
-
Re: Perhaps some clairity on why Coops and LLC are not a mortgable entity ken, May 8 2006
- Answers to detailed loan questions Rob Sandelin, May 8 2006
Results generated by Tiger Technologies Web hosting using MHonArc.