To avoid the foreclosure of a 9,000 square foot parking lot near USC, a real estate developer was discussing alternatives with her lender. The developer bought the parking lot in an LLC for $7.2 million in 2017, with family and friends as equity investors and with a $3.6 million land loan at a 6% annual interest rate fully amortizing over 25 years with recourse to the borrower LLC. The developer planned to rezone the land from commercial use to residential use to build student housing to be completed in 2020, but it was taking years longer than she expected to get the necessary governmental approvals and by 2023 the investors were no longer able to continue making the required monthly debt service payments on the land loan. Which of the following loan workout alternatives would be LEAST likely to be acceptable to their current lender? a. Permanently reducing the interest rate on the mortgage loan or writing down the outstanding principal balance of the loan b. Finding a creditworthy person to guarantee the repayment of the loan c. Providing a temporary grace period during which the monthly payments are deferred and the accrued interest is added to the loan balance d. Extending the mortgage amortization period or allowing a period of interest-only payments to be made
To avoid the foreclosure of a 9,000 square foot parking lot near USC, a real estate developer was discussing alternatives with her lender. The developer bought the parking lot in an LLC for $7.2 million in 2017, with family and friends as equity investors and with a $3.6 million land loan at a 6% annual interest rate fully amortizing over 25 years with recourse to the borrower LLC. The developer planned to rezone the land from commercial use to residential use to build student housing to be completed in 2020, but it was taking years longer than she expected to get the necessary governmental approvals and by 2023 the investors were no longer able to continue making the required monthly debt service payments on the land loan. Which of the following loan workout alternatives would be LEAST likely to be acceptable to their current lender? a. Permanently reducing the interest rate on the mortgage loan or writing down the outstanding principal balance of the loan b. Finding a creditworthy person to guarantee the repayment of the loan c. Providing a temporary grace period during which the monthly payments are deferred and the accrued interest is added to the loan balance d. Extending the mortgage amortization period or allowing a period of interest-only payments to be made
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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To avoid the foreclosure of a 9,000 square foot parking lot near USC, a real estate developer was discussing alternatives with her lender. The developer bought the parking lot in an LLC for $7.2 million in 2017, with family and friends as equity investors and with a $3.6 million land loan at a 6% annual interest rate fully amortizing over 25 years with recourse to the borrower LLC. The developer planned to rezone the land from commercial use to residential use to build student housing to be completed in 2020, but it was taking years longer than she expected to get the necessary governmental approvals and by 2023 the investors were no longer able to continue making the required monthly debt service payments on the land loan. Which of the following loan workout alternatives would be LEAST likely to be acceptable to their current lender?
a. Permanently reducing the interest rate on the mortgage loan or writing down the outstanding principal balance of the loan
b. Finding a creditworthy person to guarantee the repayment of the loan
c. Providing a temporary grace period during which the monthly payments are deferred and the accrued interest is added to the loan balance
d. Extending the mortgage amortization period or allowing a period of interest-only payments to be made
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