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Commercial Real Estate FAQs



What is commercial financing in general?

Financing a property is the standard method by which individuals and businesses can purchase residential and commercial real estate without the need to pay the full price in cash up front from their own accounts at the time of the purchase.
What is the effect of a due on sale clause?

A due on sale clause is a provision in a note, mortgage, or deed of trust whereby the entire outstanding debt becomes immediately due and payable at the creditor’s option upon sale of the property acting as collateral for the loan.

What is the difference between a mortgage and a deed of trust?
A mortgage is a document that encumbers real property as security for the payment of a debt or other obligation. The term "mortgage" refers to the document that creates the lien on real estate and is recorded in the local office of deed records to provide notice of the lien secured by the creditor. The creditor or lender, also called either mortgagee (in a mortgage) or beneficiary (in a deed of trust), is the owner of the debt or other obligation secured by the mortgage. The debtor or borrower, also called the mortgagor (in a mortgage) or obligatory (in a deed of trust), is the person or entity who owes the debt or other obligation secured by the mortgage and owns the real property which is the subject of the loan.
What is a UCC financing statement?
The Uniform Commercial Code ("UCC") is one of a number of uniform acts that have been drafted to harmonize the law of sales and other consumer and commercial transactions throughout the United States. Article 9 of the UCC governs the creation, perfection, and priority of security interests of a creditor, also called a secured party, in the personal property of a debtor, including fixtures.
What types of notes are used in commercial financing?
A cognovit note is a promissory note in which a debtor authorizes the creditor, in the event of a default or breach, to confess the debtor’s default in court and allows the court to immediately issue a judgment against the debtor.
What is an assignment of leases?
For commercial lending purposes, an assignment of leases assigns the debtor’s rights, as landlord under a lease or leases, to the creditor for the collection of rent as additional security for a debt or other obligation. The assignment grants to the creditor a security interest in the rent stream from any leases affecting a property, an important source of cash to pay the note in case of the borrower’s default. 
What is an estoppel certificate?
An estoppel certificate is a signed statement by a party certifying certain statements of fact as correct as of the date of its execution. In a commercial financing context, the creditor often seeks estoppel certificates from existing tenants in a property to be mortgaged in order to confirm the major terms of a lease, and whether the tenant claims any defaults by its landlord.
Why would the lender require a special purpose entity (also called "single purpose entities")?
For certain financing transactions, some creditors may require a debtor to become a special purpose entity or single purpose entity (SPE). Any type of business entity can be an SPE, although they are commonly formed as limited liability companies. SPEs are typically created to fulfill narrow, specific, or temporary objectives. Creditors often require that the debtor be an SPE to isolate financial risk by limiting the possibility of the bankruptcy of the debtor, including requirements to conduct its business under its own name as a separate entity, and only engage in business matters expressly permitted under the SPE’s basic documents which cannot be changed without the lender’s approval
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