Commercial Mortgage Brokers: Can a refinance be successfully concluded when the borrower owes more than 80% of the property’s value?
1. The existing lien holder(s) “take a haircut” i.e., accept a discounted payoff.
2. The existing lien holder(s) sell their note at a discount
3. The borrower is willing to bring cash to closing to make up the difference between what is owed and the new note.
4. An arrangement is made for a junior lien (higher risk, higher interest rate) to make up the gap.
5. An “equity partner” is brought in.
As a direct, private lender I have made loans in all five of these situations. Don’t give up on a loan just because the borrower’s existing liens are too high until you’ve tried these five methods. Of course, this requires a pretty good property, in a pretty good location, with the cash flow available to service the debt.