Central Mortgage Blog

Commercial financing is underwritten on a case by case basis. Every loan application is unique and is evaluated on its own merits, but there are a few common criteria lenders look for in commercial loan packages.

The financial analysis key component in an underwriting evaluation is the debt coverage ratio (DCR). The DCR is defined as the monthly debt compared to the net monthly income of the investment property in question.

Using a DCR of 1:1.10 a lender is saying that they are looking for a $1.00 in net income for each $1.00 mortgage payment.

Typically they will determine the DCR ratio based on monthly figures, the monthly mortgage payment compared to the monthly net income. In other words, the higher the DCR ratio the more conservative the lender. Mostly lenders will never go below 1:1 ratio (a dollar of debt payment per dollar per income generated). Anything less than 1:1 will result in a negative cash flow situation raising the risk of the loan for the lender. DCR’s are set by property type and what perceives the risk to be.

Today apartment properties are considered to be the least risky category of investment lending. As such, lenders are more inclined to use smaller DCR’s when evaluating a loan request. Make sure you are familiar with a lender’s DCR policy before spending any money on an application.

Additionally, ask the lender to give you a preliminary financial review on the investment property that you want to purchase or refinance.

Once your bankruptcy is filed all the property of the debtor at the time of the filing and certain other property to be received in the future become the property of the bankruptcy estate. This means that the bankruptcy trustee will take control of this property for purposes of satisfying the creditor.

However, there are certain property which is excluded or exempt and the debtor will be able to keep it. Property or assets exemption is determined based upon your situation, and the laws of your state. The best way to determine which property to keep requires a detailed analysis of your situation. As for real property in many states, depends upon which exemption scheme is selected and your circumstances, you may exempt up to $100,000 in equity.

When calculating your equity you should use a value that is based upon a forced liquidation as opposed to the best selling condition to arrive at a value for your home. Once you determine this value subtract the amount owed plus selling and transfer costs from the value to calculate the equity. As regards personal property, in California you are permitted exemptions for a variety of personal property.
Of course, state laws have a bearing on this, that’s why you need a good attorney.

One of the major benefits of protection under Chapter 7 is that many creditor action are stayed. This means that debt collection efforts and foreclosure is halted. Once a creditor or bill collector becomes aware that you have filed for bankruptcy protection, he or she must stop all efforts to collect the debt. After your bankruptcy is filed, the court mails a notice to all creditors listed in your schedules.

This usually takes a couple of weeks. If this is not soon enough, then you should have your representative inform the creditor immediately. If a creditor continues to use collection tactics once informed of the bankruptcy then you may be liable for court sanctions and attorney fees for this conduct.
These laws and regulations under Chapter 7 are clear and straightforward. During this process you may have the only luxury of saying “you’ll have to talk to my lawyer”.

I know that this subject is not a pleasant thing to talk about, but did you ever hear the expression (knowledge is power)? The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond his or her ability to repay the debt should be given a fresh start through the discharge of debts in a bankruptcy proceeding. However, not all debts are dischargeable. Generally speaking, the following debts will not be discharged:
1. Taxes
2. Spousal and child support
3. Debts arising out of willful or malicious misconduct
4. Liability while driving intoxicating
5. Debts from prior bankruptcy
6. Student loans
7. Criminal fines and penalties Those debts that are secured will be discharged, however, expect the creditor to take back the property.
In most cases if the debtors equity interest in the property is exempt, the debtor may retain the property by redemption or reaffirmation. This article deals with Chapter 7 consumer bankruptcy. Please understand that each state has its own bankruptcy laws, therefore, check with your state for details.

Chapter 7 bankruptcy is a liquidation proceeding. Where the debtor turns over all none-exempt property to the bankruptcy trustee, then who converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts.
The following are qualifications for filing a Chapter 7 bankruptcy:
1. You must reside or have a domicile a place of business or property in the United States or a Municipality.
2. You must have not been granted a Chapter 7 discharge within the last 6 years or completed a Chapter 13 plan.
3. You must not have a bankruptcy filing dismissed for cause within the last 180 days.
4. It must not be a “substantial abuse” of Chapter 7 to grant the debtor relief. Generally speaking, after paying the monthly expenses for necessities where there is not enough money to pay the remaining monthly debts, then granting a discharge would not be an abuse of Chapter 7.
5. It would not be fundamentally unfair to grant the debtor relief under Chapter 7. Of course, each state has it’s own bankruptcy laws, so you need to check with your state for details.

1. Don’t sign any papers you don’t fully understand.
2. Beware of loan assumptions where you are not formally released from liability for mortgage debt and contracts of sale.
3. Check with a lawyer or your mortgage company before entering any deal involving your home.
4. If you’re selling your home yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer.
5. You can contact the State Attorney General, the Real Estate Commission or the local District Attorney Consumer Fraud Unit for this type of information.
Remember that every individual’s factual situation is different and you should seek independent advice from an attorney regarding your personal situation.

Solutions that sound too simple or too good to be true usually are. If you are selling your home without professional help, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial situation. Be especially alert to the following:

1. Equity Skimming: In this type of scam, a “buyer” approaches you, offering you to get you out of your financial trouble by promising you to pay off your mortgage or give you a sum of money when the property is sold. The “buyer” may suggest that you move out quickly and deed the property to him or her. The “buyer” then collects rent for a time, does not make any mortgage payments and allows the mortgage company to foreclose. Remember that signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.

2. Phony Counseling Agencies: Some groups called themselves “counseling agencies” may approach you and offer to perform certain services for a fee. These could well be services you could do for yourself, for free, such as negotiating a new payment plan with your mortgage company or pursuing a free foreclosure sale. If you have any doubts about paying for such services call a HUD-approved housing counseling agency. Do this before you pay anyone or sign anything.

This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. You may qualify if:

1. The “as is” appraised value is at least 70% of the amount you owe and the sales price is 95% of the appraised value.

2. The loan is at least 2 months delinquent prior to the pre-foreclosure sale closing date.

3. You are able to sell your house within 3 to 5 months (depending on what your mortgage company agrees). The additional benefits to this option is the assistance you will receive with the seller paid closing costs. Deed in Lieu of Foreclosure: As a last resort, you may be able to voluntarily (give back) the property to the mortgage company. This won’t save your house but it will help your chances of getting another mortgage loan in the future.

You can qualify if:

1. You are in default and don’t qualify for any of the options discussed.

2. Your attempts at selling the house before foreclosure were unsuccessful.

3. You don’t have another mortgage in default. For additional advice, a housing counseling agency can help you to determine your best option.

Partial Claim: Your mortgage company may be able to work with you to obtain an interest free loan from HUD to bring your mortgage current. You may qualify if;

1. Your loan is at least 4 months delinquent but no more than 12 months delinquent.

2. Your mortgage is not in foreclosure.

3. If you are able to begin full mortgage payments. When your mortgage company files a Partial Claim, HUD will pay your mortgage company the amount necessary to bring your mortgage current.

You must execute a Promissory Note, and a lien will be placed on your property until the Promissory Note is paid in full. The Promissory Note is interest free and will be due if you sell or leave your property, or when your mortgage matures. Stay tuned to some additional comments to alternatives to foreclosure.

Special Forbearance: Your mortgage company may be able to arrange a repayment plan based on your financial situation. Your mortgage company may even provide for a temporary reduction or suspension of your payment.

You may qualify if you have recently lost your job or source of income or if you have an unexpected increase in living expenses. Of course, you must furnish information to your mortgage company to show that you would be able to meet the requirements of a new payment plan. Mortgage mortification: Additionally, you may be able to finance the debt and/or extend the term of your mortgage loan.

This may help you catch up by reducing the monthly payment to a more affordable level. You may qualify if you have recovered from a financial problem but your net income is less than it was before the default (failure to pay).

There are still other alternatives to foreclosure, be looking out for them in following articles.