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Buying Loan Documents or Paying off the Mortgage?

Refinancing commercial real estate in Florida is expensive. In addition to the typical bank fees and costs for the appraisal, environmental report, recording costs and lender loan fees, the borrower must pay fifty five cents per every one hundred dollars of the loan amount for intangible and stamp taxes. For a million dollar mortgage, that comes to $5,500.00 payable to the State of Florida.

Sometimes, however, the current lender being taken out may be willing to assign its loan documents to the new or subsequent lender. The assignment is, of course, without recourse to the current lender, and the borrower avoids paying the documentary stamps and intangible tax on the then outstanding principal balance of the loan being assigned. Any "new money" advanced at closing in excess of the outstanding principal balances requires payment of intangible and stamp taxes.

Why would the current lender being taken out agree to assign the existing mortgage? Answers include: (a) not every lender will agree; (b) the current lender often requests an assignment fee from the borrower in an amount less than the documentary and stamp tax charges; (c) it has an ongoing relationship with the borrower or shareholder of borrower and wants to leave a favorable impression for possible future business; or, (d) the lender wants the borrower to move the loan out of the bank, and the assignment reduces the cost of moving the relationship.

Why would the new lender refinancing the property agree to accept an assignment of the existing mortgage? Answers include: (a) not every lender will agree; and, (b) the new lender wants the loan and tries to minimize borrower's costs to make the refinancing more palatable.

When representing commercial borrowers our firm encourages our clients to ask the current and new lender whether both would consider such as assignment. If both answer yes, than an analysis must be made as to whether the costs of the assignment (assignment fee and current lender's attorney fee for preparing the assignment documents) are less than the documentary stamps and intangible tax savings. My experience is that an assignment is generally not something to consider for commercial loans of less than one million dollars, as the costs of the assignment typically outweigh the savings. Also, this technique is typically not appropriate for residential loans.

For more information about our firm's commercial real estate practice, click here.

For previous real estate blog posts, click here  

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