Summary:

Some owners fail to maintain their properties for all the obvious reasons.  However, neglecting this can lead to a decrease in property value, potential legal issues, and a negative Impact on the community, underscoring the importance of regular property maintenance.

Typically, a buyer anticipates a rise in value by revamping, enhancing operational efficiencies, rebranding, and increasing rents, thereby creating a promising future for the property and instilling confidence in the property owner.

These purchases, often referred to as value-added, represent a strategic approach in the real estate industry. They describe properties with the potential to increase in value through well-planned renovations and improvements, offering property owners and investors a promising future.

Property owners may obtain municipal approvals, make improvements, raise rents, secure long-term institutional financing, or obtain a private money loan.

Article:

Over the years, borrowers have faced significant challenges in maintaining their properties, leading to substantial disrepair.  This neglect is documented in public records, underscoring the crucial and valued role of the lender in such situations, which provides a much-needed sense of security to borrowers.

Borrower mortgage broker comments:

I was unaware that the city had recorded a notice of substandard condition against my client’s property.

When discussing this loan, the broker suggests that whatever was wrong has already been fixed and is no longer an issue. Let’s pretend to obtain a better loan quote, as everything with the Borrower and property is perfect.

The prudent mortgage broker/lender, who is knowledgeable about the State Housing Laws and the Uniform Housing Code, responds with their respective expertise:

The State Housing Laws and the Uniform Housing Code define substandard housing as any condition that exists to the extent that it endangers the life, limb, property, or safety of the occupants or the public.  The city building department official found an infraction that one or more property deficiencies exist, which need to be repaired and brought up to current zoning and building standards.

The notice of substandard conditions may require adjustments, modifications, or the partial or complete demolition of the building. As the property owner, the Borrower should contact the building and safety representative to obtain copies of any reports, which will help evaluate the extent of required changes or alterations and the total cost of mitigation.  The property owner must be willing to conform to what the city will accept before they release the notice. This process underscores the importance of obtaining city approvals and adhering to building and safety regulations in property maintenance.

The lender’s expertise is crucial in such a situation. They may need to hold back a portion of the loan and deposit the proceeds into a licensed construction fund control company. The fund control company’s job is to confirm construction progress, maintain an accounting of the funds, write checks, ensure subcontractor payments, and obtain lien releases.  This is not just a simple fill-out-and-check-the-box solution.  It is a complex issue that underscores the need for a competent lender who understands the problems and the strategy to complete improvements and close a loan transaction successfully.

In both cases above, converting a bootleg building back to conforming or upgrading a building that was in disrepair will require a building permit, a set of plans, possible engineering reports, cost estimates, and a contractor’s estimates to determine the total cost.  If the Borrower wants to obtain a loan for construction purposes, the loan proceeds are handled by a licensed loan fund control company.

With all the above exhibits in hand, the lender would order an appraisal to be completed by a certified appraiser.  The appraiser should assess the subject property in both an as-is condition before the rehabilitation and as a completed value. The new lender would consider both, including the amount of interest carried during the construction and lease-up period.  The reserve dollar amount is added to determine the total loan required.

The above example highlights the significant role of private money lenders in complex transactions.  Their flexible underwriting, speed, and willingness to undertake such transactions make them invaluable. Private money lenders are often the go-to option for complex transactions due to their ability to adapt to unique situations and make quick decisions, making them key players in real estate financing.