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My partner and me are currently equal partners with some…

My partner and me are...
My partner and me are currently equal partners with some commercial property in Pennsylvania. My partner wants to borrow $200K against the equity in our properties to purchase another commercial property outside of our partnership.I asked why he doesn’t refinance his personal home to finance the property and he said he needs to get a commercial loan because the property he is interested in is a commercial property.He said he would refinance his personal home to pay the loan off after he receives the commercial loan.What do I need in place to protect my equity interest if things went south with this deal? We both also own real estate outside of our partnership.Also what are the downsides for me in allowing him to proceed with this deal? (i.e., I can’t borrow against my portion of the equity until this loan is satisfied.)Is there anything I am missing when I am negotiating with my partner to allow him to proceed with this deal? Should I be making a profit by allowing him to borrow against our equity?Here are some of the details or the loan:Loan Request: A new first lien in the amount of $200,000
Term: 360 Month Term & Amortization
Fixed Rate Period: 3 years
Adjustable Rate Period: 27 years
Interest Rate: 9.87% during the Fixed Period, adjustable after the Fixed Rate Period
Adjustable Interest Rate: = WSJ Prime (index) + 5.00% (margin) during the Adjustable Rate Period
Rate Adjustment Caps: Maximum 2.00% on the first rate adjustment, 1.00% every 6 months thereafter during the Adjustable RatePeriod
Lifetime Limits: The Interest Rate during the Adjustable Rate Period will never be below 9.87% or above 15.87%
Prepayment Penalty: Equal to 5.00% of the amount paid in full during the first 3 year(s) of the loan
Rate Buydown: None
Prepay Buydown: None
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Answered in 11 minutes by:
10/20/2017
Barrister
Barrister, Lawyer
Category: Real Estate Law
Satisfied Customers: 42,093
Experience: 17 years real estate, Realtor. Landlord 26 years
Verified

Hello and welcome! My name is ***** ***** I am a licensed attorney and will try my best to help with your situation. There may be a slight delay in my responses as I type out an answer or reply.

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Something sounds fishy here...

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Does he have any equity in his home at all?

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And that doesn't make sense as the bank isn't going to care what he uses any cash out of his home on... So that leads me to believe he doesn't have any equity or very little.. So basically he wants to borrow $200K from you and the bank..

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You need to have some type of second mortgage on any other assets that he has with enough equity to secure your $200K that he wants to pull out.

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As for downsides, it puts the commercial property at risk if he goes belly up and doesn't have any equity in his other assets and is "borrowing from Peter to pay Paul"... And it puts you in a bind if the partnership needed to generate cash for some reason because that asset has already been tapped.

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And that is a terrible interest rate initially and then it can go up after 3 years... If he took out a loan on his home, if he has equity, he could get it at probably 4-5% if he has decent credit..

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And if he prepays it by refinancing his house he pays $10K in fees... terrible..

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I don't like the deal at all and it makes me very nervous for you that he is even proposing using assets that are half yours for his own private piggy bank..

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If it were me, I would pass on the deal as I see no upside in it for you, only risk.

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thanks

Barrister

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Customer reply replied 8 months ago
He has some equity in his home. He also owns another rental property with some equity. I'm not sure how much. We own 7 properties together. His credit is not that strong, his wife has better credit so the loan will probably go under her name. He has an available VA loan he wants to use on his own personal house to satisfy the equity loan.

I can't tell you what to do, but if it were me, I would want to be holding $200K of second mortgages in property with equity before I considered signing anything to borrow against a partnership property..

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And I still don't see any benefit to you in this deal for allowing him to tap that equity that I am sure you worked hard to acquire..

Barrister
Barrister, Lawyer
Category: Real Estate Law
Satisfied Customers: 42,093
Experience: 17 years real estate, Realtor. Landlord 26 years
Verified
Barrister and 87 other Real Estate Law Specialists are ready to help you
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Customer reply replied 8 months ago
Sound good. Thank you.

Thank you very much for the positive rating and generous bonus, it is greatly appreciated!

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You are very welcome. Happy to help any time.

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It was my pleasure to work with you and help with your question. If you ever need me in the future, you can post a new question with "For Barrister" in the title and the JustAnswer employees will get it to me.

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Thanks much

Barrister

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Barrister
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