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The following article was published in our article directory on September 23, 2015.
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How to Assume a Commercial Property Mortgage?

Article Category: Real Estate

Author Name: Michael McGovern

To get a commercial property mortgage in New York, the business will need to take on the existing mortgage of the property that it is about to purchase. This process can help the business net a loan with a rate lesser than the current market rate. However, assuming a commercial mortgage is not a simple process. There are also commercial mortgages that don�t have provisions for assumptions.
What is an Assumption Provision?
In order for a business to get a commercial property mortgage, it is a must that the original loan document contains an assumption provision. It refers to a clause in the commercial mortgage itself that enables the mortgage to be assumed by a different borrower, given that all standards are met. In the event that the mortgage does not contain an assumption provision, the one who will assume the mortgage needs to acquire a new mortgage in order to pay off the existing one.
How to Assume the Mortgage?
When assuming a commercial mortgage without any previous interest, the lender will have to qualify you as a new borrower. Depending on the policy of the mortgage, it usually requires two or three years of your business and personal tax returns. Your assets and liabilities, as well as your personal financial statements, will also be required. There will also be a need to test your debt service coverage. Doing so can help lenders verify your cash flow. It needs to exceed your debt by at least 1.2 times. There are also instances wherein the lender will order an appraisal, but this process is more on gathering information.
How to Assume as an Existing Borrower?
There is also another way to assume a mortgage. One of this is to acquire a loan wherein you are already the borrower. A good example would be if you and your business partner acquired a commercial property mortgage with both of you as co-borrowers. Assume that eventually, your business partner drops out of the business. You can have your business partner removed given that you and your business qualify for the loan without your business partner�s contribution. In case that your debt service coverage ratio is too low to be accepted, you will need to refinance in order to remove your business partner so that you would be able to assume the commercial property mortgage on your own.
How to Go Forward After Assuming a Mortgage?
When assuming a commercial mortgage, it is expected that you need take on responsibilities not associated with a conventional loan. Commercial property mortgage require reporting and covenants. Commercial property loans require the borrower to render updated personal and business tax returns, as well as comprehensive financial statements every year to the lender.
The lender will then need to study the statements to make sure that no covenants have been violated. Some of the covenants included are making sure that the debt service coverage ratio remains well-maintained. Likewise, they will check whether a minimum net worth has been established and that the lender has a demand deposit account.

Keywords: commercial property mortgage, commercial property loans

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