A hard money loan is typically valued against the property being used as collateral, so having all necessary information about the property is essential. But sometimes what the record turns up could scare off lenders and borrowers alike.
Due diligence in the commercial lending world is very important because it determines the property's valuation. There are other factors that can also influence the loan, if the property is going to be used as collateral. And if the property has been around for awhile, its history could turn up a haunting surprise or two that could prove daunting.
Straight Facts, Solid Valuation
Many potential borrowers are drawn to certain properties due to their historical appeal. But the supernatural residents they may encounter there may not be so welcoming. Take the unexplained phenomenon reported at Blickling Hall, a United Kingdom National Trust site. Workers and local residents near the new One World Trade Center complex in New York City have also described hearing strange noises and other inexplicable sightings. In New Orleans, Nicholas Cage reportedly had so much trouble with his property, the infamous LaLaurie Mansion, being haunted that he never slept there. Eventually, the property was unloaded at an auction, but not without some dispute over its valuation.
In the case of Stambovsky v. Ackley, the New York Appellate Court ruled that a house purported to be haunted, of which the haunting impairs the value of the property and is not properly disclosed to the buyer before or at the time of sale, can constitute a basis for rescission of the purchase agreement. Ironically, this case is known in some circles as the “Ghostbusters” ruling.
Whatever the case may be, getting the facts about the property’s history will ensure a more effective valuation.
A lender who wants to handle a property of historical value, especially for a hard money deal involving a renovation, has to take its past into consideration--whether or not it's subject to supernatural forces. If the place is listed on the National Register of Historic Places, it will come under the purview of regulatory agencies that may have the last word on approving any modification permits, and that could hike up the costs.
A landmarked property may not be "stigmatized" by its past but it could still end up costing borrowers a pretty penny if the lenders are spooked. Knowing as much about the place beforehand is an incalculable benefit for both borrower and lender.
Making sure that your commercial lending scenario doesn’t frighten you is where we come in. Original Funding believes that getting unrestricted commercial financing should not be a scary experience. We provide professional expertise, quick underwriting and funding, as well as free business resources to help commercial landlords and businesses be successful from the inside out.