Can't secure agency DUS debt due to bankruptcy from 12 years ago
Hey everyone, looking for some honest feedback from direct underwriting and credit risk people on why credit committees are choking out a performing deal.
We keep hitting a wall on a new build, stabilized multifamily asset because of a personal bankruptcy from 2014 on my partner, whose credit score now is above 800. We even structured the ownership entity so the principal with the legacy bankruptcy holds less than a 20% stake, but that still hasn't been enough. It has cleared standard credit reporting, but inevitably ends up receiving a no due to "pre-review state, first time borrower, and past credit event".
The deal metrics are rock solid. Cash flows well exceeds tier 3 DSCR requirements, valuation is 63%, below the Tier 3 65% threshold. We've been in business over 20 years, and currently have over 200 self-owned and developed under management.
We are first time agency borrowers, but the rest of our profiles are completely fine. We easily clear the standard liquidity and net worth benchmarks for the loan size. Still, direct DUS lenders get excited about the property metrics only to say respectully say no months into underwriting once credit formally reviews it.
For the credit analysts here, what is actually spooking committees right now? Is it just a choppy market environment where lenders are looking for any reason to pass, or is a 12 year old bankruptcy a permanent corporate veto regardless of the marginal ownership stake and strong asset cash flow?
Aside from bringing on a full co-guarantor, what does it actually take to get credit teams to look at the real estate instead of a legacy character mark?
Appreciate the raw insight from the credit desk. I am not looking for broker pitches, just pure policy reality.
You need to divorce your wife, Joey. And freeze her out of the capital stack.
Don’t be a dick about it or anything. Make sure she knows it isn’t because you don’t love her anymore. Gotta do what you gotta do for the deal, though. Multiples over marriage.
Lol, I would but my wife is my father in this case. Not as many perks as a wife other than multiples, and the breath of life.
Roll tide, brother. The user name makes sense now.
No sir, LSU. Lane's home now eating tiger bait
You'd need to give the bankruptcy details before expecting any real answer. At that point, it's not about the property or cash flows, it's the sponsorship and character risk.
Chapter 7 on personal credit card debt totaling $70K. Had a 2007 property sale in which the title attorney transfered the properties in the buyer's name before funds were delivered. He spent the next 7 years suing the buyer and title attorney only to get 1/10th of what was owed, which ended up outweighed by legal fees.
All that's to say, it wasn't caused by overt irresponsibility. Kept doing deals and managing different properties during that time. But like I said, credit score is already back over 800, me and him have both amassed a good sized portfolio, and agencies even state they "only look 10 years back".
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