Commercial Mortgage Process

[Furned]

Hello, I'm new to this forum.

I'd like to ask a question please about the commercial mortgage application process.

I am in an application process currently via a broker.

I had previously understood that the process would be approx. like this:

We select a product
We supply documents, accounts, answer questions etc.
Lender performs credit check
"Concrete" Mortgage offer to us made pending a valuation of the property

I.e. The finance is essentially in place before committing money to a valuation.

However the situation we're in is that documents have been supplied etc. and we then received what you might call an offer in principle.

We then understood it was moving to the next stage where we would get the full "concrete" offer with only a valuation to go.

What we have received, about a week later, is basically another document almost identical (except a few terms changed), to the previous document, with simply a different title. It turns out that a credit check has not been done either.

It seems that in going to the next stage the broker will be paid. It also seems that the Lender can recoup their costs from us, which I guess could be the broker fees they have paid out.

So, it seems that should things not go to plan, such as a failed credit check, we could end up with a lot of money to outlay for basically a mortgage in principle document.

It would seem sensible to do a credit check and all other basic investigations at an earlier stage.

I hope that makes sense. To clarify, I'm not against brokers getting their fees.

Thanks!

 

[Mark T Jones]

Others - such as @Gordon - Commercial Finance are better informed than I am on the commercial mortgage process. However I would expect that, with your consent, they could Box off the searches prior to fees

 

[Furned]

Hi Mark,

Thanks for your reply. Yes, I would have thought that would be the case.
This has not been a rushed process. There has been plenty time to do credit checks etc.

Thank you

 

[WaveJumper]

I agree with the OP I would very much of thought this would be the process, don't see why it would be any different from any other application or process through a broker. As Mark has said those with much more knowledge on these matters I am sure will be able to give you some better guidance very soon.

I certainly would not be paying a broker any money until the funds were approved and in the bank. I know it's probably a real pain but I think I would certainly be talking to a couple more brokers, also have you tried going direct to your bank

Oh and another thought suddenly comes to mind have you thought about financing this through your own pension trust, there's a thread on this if you do a quick search. This was the way my own tax adviser pointed me in when looking into buying warehouses.

 

[Furned]

Thank you for your reply Wavejumper

I will look at those other options.

It does seem like the process shouldn't be quite like this. It's as though it is slanted towards the broker getting a fee rather than the borrower getting the deal promised.

Thanks.

 

[WaveJumper]

Check this out
https://www.ukbusinessforums.co.uk/threads/buying-an-office.398747/#post-2938925

 

[Mark T Jones]

A key question here is whether there is anything nasty likely to come out of the searches? (Incidentally, you can credit search yourself for free). If so, you really need to be disclosing it up front.

Most commercial brokers will require a part of their fee in advance - certainly not all of it!

 

[Mr D]

Thank you for your reply Wavejumper

I will look at those other options.

It does seem like the process shouldn't be quite like this. It's as though it is slanted towards the broker getting a fee rather than the borrower getting the deal promised.

Thanks.

Can understand someone wanting to make money.

 

[Furned]

A key question here is whether there is anything nasty likely to come out of the searches? (Incidentally, you can credit search yourself for free). If so, you really need to be disclosing it up front.

Most commercial brokers will require a part of their fee in advance - certainly not all of it!

Hi Mark,

I don't believe anything bad is lurking and we've been completely open. My question isn't really about that as such, it's more that the process seems wrong and definitely different to what I've experienced before.

I completely understand that the broker is in it to make money. That's obvious and fine. We are not paying the broker a fee directly, it's paid by the lender. So therefore I would have hoped that we would get a full credit checked offer before the lender pays the fee.

In paying the fee too early in the process it could easily be (for whatever reason and not our choosing) that the loan doesn't proceed yet the lender wants to chase us for their expenses, I.e. The broker fees.

This arrangement would allow brokers to "fire" lots of borrowers at the lender and get a fee each time with the borrower picking up the costs. This hypothetical scenario sounds like a nice arrangement between the lender and broker, potentially leaving the borrower out of pocket and no mortgage.

Incidentally in our case there are a few other anomalies in the docs. I didn't mention as it would complicate my question.

For example, an ancillary financial product which was agreed to be part of the mortgage is missing from the second "offer" document with no explanation or covering note.

Additionally, the second "offer" document mentions me being a PG for quite a large sum. Again this was slipped in with no covering note or mention from the broker.

Regards

 

[Furned]

@WaveJumper Thanks for the link.

 

[Mark T Jones]

Hi Mark,

I don't believe anything bad is lurking and we've been completely open. My question isn't really about that as such, it's more that the process seems wrong and definitely different to what I've experienced before.

I completely understand that the broker is in it to make money. That's obvious and fine. We are not paying the broker a fee directly, it's paid by the lender. So therefore I would have hoped that we would get a full credit checked offer before the lender pays the fee.

In paying the fee too early in the process it could easily be (for whatever reason and not our choosing) that the loan doesn't proceed yet the lender wants to chase us for their expenses, I.e. The broker fees.

This arrangement would allow brokers to "fire" lots of borrowers at the lender and get a fee each time with the borrower picking up the costs. This hypothetical scenario sounds like a nice arrangement between the lender and broker, potentially leaving the borrower out of pocket and no mortgage.

Incidentally in our case there are a few other anomalies in the docs. I didn't mention as it would complicate my question.

For example, an ancillary financial product which was agreed to be part of the mortgage is missing from the second "offer" document with no explanation or covering note.

Additionally, the second "offer" document mentions me being a PG for quite a large sum. Again this was slipped in with no covering note or mention from the broker.

Regards

It would certainly appear that there is a lack of openness and communication here - never a great sign in a broker.

Out of interest, is this a dedicated commercial mortgage broker, or a 'finance broker' with no real specialism.

TBH; if you aren't too far down the line I'd seek a proper, reputable commercial mortgage broker.

Otherwise, be sure to get clear, written answers to all areas of concern before going further

 

[Furned]

It would certainly appear that there is a lack of openness and communication here - never a great sign in a broker.

Out of interest, is this a dedicated commercial mortgage broker, or a 'finance broker' with no real specialism.

TBH; if you aren't too far down the line I'd seek a proper, reputable commercial mortgage broker.

Otherwise, be sure to get clear, written answers to all areas of concern before going further

Hi Mark,

It's from a company who crops up a lot when searching for commercial mortgage providers. I think they do provide a range of services but are really clear about pushing commercial mortgages. I'm surprised at what's happened as they seem reputable. Perhaps I'm being overly cautious, but there is a lot of money involved, for us anyway.

I'll push on and look at options too, as you mention.

Thanks for your time

 

[Gordon - Commercial Finance]

I’m a bit late to the party sorry but I would agree with Mark - explore other options.
Commercial mortgages isn’t something I do loads of but if it’s anything like bridging, the broker gets fees from the lender when the loan actually pays out. Shouldn’t be any other way in my opinion.

Perhaps you’ve misunderstood something or (more likely) something hasn’t been correctly explained to you? Have an open conversation with the broker, explain your concerns and if you aren’t happy with the responses then there are plenty brokers out there to help you.

 

[wesdav]

Commercial mortgages are not regulated like residential mortgages on property you live in. Doesn't mean they should be any less structured in terms of process, but it does mean that you don't get all of the normal documents you would usually get with a residential mortgage.

I secure lots of commercial finance for clients and the terms are detailed to clients in an email. The application is submitted and a list of documents requested by the lender. You can choose to go to valuation immediately or hold off doing valuation until all documents are checked and loan is formally approved.

Broker and lender fees are added/deducted from the loan so the ONLY fee you should have paid upfront is the valuation fee.

Communication is key and that seems to be the issue here.

Wes.

p.s assuming your not dealing with Fox Davidson ;-)