Why Most Commercial Lenders Forbid Second Mortgage Loans

Suppose your client is trying to buy a commercial property with a down payment of just 10%.  His plan is to have the seller carry back a second mortgage on the commercial property equal to 15% of the purchase price.  He will then try to get a loan from a commercial bank for 75% of the purchase price.

Unfortunately the plan will not work.  Most banks and all CMBS lenders forbid second mortgages on the property at the time of the purchase.  (Many CMBS lenders WILL allow a mezzanine loan, however.)

So why are second mortgages forbidden on the sale of commercial properties.  The reason is because commercial lenders fear that the property owner, if cash gets tight, will use the repair money to make the payments on the second mortgage rather than to maintain the property.

A good solution is to have the seller carry back the second mortgage on another property owned by the buyer, say a rental duplex or a different office building.

When you apply for a commercial mortgage loan using C-Loans, we have a special section called "Special Issues" where you can describe the junior financing that you hope the bank will alllow the seller to carry.  C-Loans is a great way to quickly present your deal to 30 lenders to find the one lender aggressive enough to help your client.