Class 9: Loan Commitments and Other Prefinancing Considerations - Feb. 7 Flashcards
What is a construction loan? (Emanuel)
The construction loan is used to finance development and construction of a real estate development project. (250)
What are the risks and term for construction loans? (Emanuel)
The construction loan is high risk, based on the potential value of the project if it is completed as planned. The loan is short term.
What is the structure of construction loans? (Emanuel)
Usually recourse, with periodic draws, and payable when the project is completed.
What is the supervision of construction loans? (Emanuel)
Requires supervision at the project location and of the funding and expenditure process.
What is a permanent loan? (Emanuel)
The permanent loan pays off the construction loan.
What are the risk and term of construction loans? (Emanuel)
It is lower risk because the project is complete and generally long term and nonrecourse.
What is the structure of a permanent loan? (Emanuel)
The owner pays the permanent loan out of the revenues from the finished project. It is lower risk because construction is complete and the lender can actually evaluate a finished project.
What is the supervision of a permanent loan? (Emanuel)
Permanent lenders need expertise in property management and cash-flow controls.
What is a mortgage loan commitment? (Bender)
A mortgage loan commitment is a contract between a prospective creditor and debtor under which the debtor agrees to borrow a sum of money from the creditor and the creditor agrees to lend such sum to the debtor. (149)
What happened in Teachers Insurance & Annuity Association of America v. Butler? (1986) (Q/TB)
A duty of good faith is implied in every contract. Where essential terms of a contract are missing both parties must negotiate in good faith.
Terms that change last minute: economic duress, lack of consideration (for the change), duty of good faith
What is the intent to be bound test? (Q)
Intent to be bound test
1. Conditions in context of the overall agreement
2. Context of the negotiations
3. Extent to which there are terms that remain open
4. If there has been partial performance
5. Customary form for the type of transaction involved
