December 29, 2021
Best Ever CRE Team

What to Do When Your Lender Backs Out at the Last Minute

Pulling off a commercial real estate deal is often a challenging feat. When you’re dealing with multifamily units or a large commercial space, the deal is bound to involve multiple moving parts. Sometimes, everything seems to be in order until the very last minute when the bottom drops out.

The best real estate investors manage to stay calm in these stressful situations. With the right strategy, you might still be able to salvage a deal. The key is to accept the sudden collapse, identify possible solutions, and work diligently to bring a new deal into place.

The Situation: A Lender Suddenly Backs Out

Imagine you’ve got a massive commercial real estate deal on the cusp of going through. Suddenly, the financial institution that had promised you a loan decides to pull the plug.

There are all sorts of reasons a bank could make such a last-minute decision. A new leader could have come in and changed the institution’s operating procedures, or maybe someone suddenly got cold feet. Whatever the reason, you now find yourself in a precarious situation. You’ll need to secure financing from another source, and you’ll need to do it before the seller pulls out of the deal.

The Potential Consequences

Losing your financing at the last minute can have truly disastrous consequences. In the first place, you could lose your ability to close the deal. The deadline could pass, the seller could refuse an extension, and you could find yourself without the property you’d been hoping to purchase.

What’s even more devastating is that everything invested in the project, including time and financial resources, will have gone down the drain for nothing. Needless to say, this is an awful situation to find yourself in. To avoid this worst-case scenario, you should do whatever it takes to salvage the deal.

How to Handle the Situation

Losing your financing is certainly devastating, but it doesn’t have to be a fatal blow. With an industrious work ethic and a can-do attitude, you can still find a way to rescue the deal. What matters here is working quickly and communicating with everybody involved in the case. You’ll need the seller to be on your side, and you should work closely with a trustworthy broker. If you take the steps outlined below, you can find another bank to close the deal.

Talk With the Seller

When a deal falls through just before a scheduled closing, the seller is bound to become a little bit spooked. They trusted you as a reliable buyer, and now they have a reason to doubt your ability to close the deal. If you want them to come back to the table and hammer out a new solution, you’ll need to convince them that you’re still worth trusting.

Contact the seller immediately to reaffirm your commitment to buying the property. Then, explain exactly how you’ll go about securing the financing you need. Give them a timetable, and express confidence in the ultimate completion of the deal. As long as the seller gives you the benefit of the doubt, you’ll still have a chance to pull the deal through.

Negotiate for an Extension

If the terms of the deal are about to expire, you’ll need the seller to agree to an extension. Some savvy owners might demand an increase in the sales price in exchange for giving you extra time. Don’t agree to the first price mentioned, but negotiate a deal that works for everyone. You might have to bluff and threaten to walk away to secure a fair price.

Work With a Reliable Mortgage Broker

The mortgage broker will play an essential role in finding a new lender to finance the deal. You should work closely with the broker during this process. Find someone you can trust, and let them in on your negotiations with the seller. Remember that your interests align with those of the broker. If you work together closely, you’ll have a better chance of eventually closing the deal.

Find a New Source for the Loan

The ultimate goal is to work with the broker and find another financial institution that’s willing to finance the deal. As you search for the right bank, it’s important to be fearless and proactive. Don’t hesitate to inquire with local banks that might not seem like the perfect fit. Time is of the essence in a situation like this, and any potential lender is worth a shot. With perseverance and hustle, you should manage to find a bank that’s willing to offer the loan.

General Tips for Closing Commercial Real Estate Deals

While the steps described above are great for getting you out of a pickle, it’s better to avoid such challenging situations altogether. With the right approach to commercial real estate deals, you should be able to avoid most last-minute crises. Whether you’re dealing with multifamily units or commercial spaces, here are some general tips to keep in mind.

Prioritize Communication With the Lender

You’re less likely to be blindsided by a bank or financial institution if you’re in constant contact with them in the lead-up to the closing. When talking with a representative from the bank, you should notice any signs of doubt or hesitation. If you forecast a potential pullout from the deal before it happens, you’ll have a chance to prepare and consider other options.

Build Strong Relationships With Mortgage Brokers

A mortgage broker is often your strongest ally when negotiating over multifamily units. By building strong relationships with brokers, you’ll give yourself a greater chance of securing complicated deals and avoiding sudden collapses. Smart investors use the same brokers throughout their careers, taking advantage of the improved results that such a tight working relationship can bring.

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

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