Are you considering obtaining financing for or cashing out equity in your commercial property? If so, I would recommend doing a little due diligence on your commercial real estate before you secure a lender’s commitment to lend you money. Your property will become the lender’s collateral for the repayment of their loan and, as such, the lender will want to make sure that there is nothing affecting your property that could negatively affect their collateral. As part of the lender’s due diligence they will order a title report on your property to confirm ownership of the property and to confirm that there are no other liens on the property. They will also obtain municipal searches for the property that will tell them whether the proper certificates of occupancy are in place for the property and whether there are any violations issued against the property by the municipality where the property is located.
When representing a lender closing a commercial loan, too often I see a situation where there are multiple violations on a property and the property owner is unaware that the violations have been issued against that property. When violations are first discovered during the loan closing process a property owner has limited options. Most often the lender will want the violations cured before they agree to close and fund their loan. In some limited cases, and especially where the violations are relatively minor, a lender might agree to close and fund the loan with an undertaking from the property owner to clear the violations post-closing. In that situation, the lender will provide that the failure to cure the violations within the time period specified following closing will be a default under the loan entitling the lender to all of their rights and remedies in the event of a default. Many lenders may also require, in addition to the post-closing undertaking, a hold back or escrow of some of the loan proceeds until the property owner has cleared the violations and complied with the lender’s post-closing undertaking. Neither option presents a good situation for a property owner expecting a timely closing and access to all of the money that they have borrowed. With a little advance planning and borrower’s due diligence all of this drama can be avoided and a timely closing and full availability of loan proceeds can be assured. Any title company can order municipal searches for a modest fee and they are usually readily available within a week or two depending on where the property is located. If issues are discovered in the municipal searches, a knowledgeable attorney can help you to navigate and resolve the issues. At Cuddy & Feder LLP, we have a team of experienced real estate attorneys with many years of experience dealing with such issues and would be pleased to offer any assistance you may need.