TOPIC OF THE MONTH / MAP MEMBERS / UPCOMING EVENTS

Topic of the Month

DEVELOPER FINANCING - A SOLUTION THAT SHOULD NOT BECOME A DEVELOPER'S PROBLEM

Let’s face it; the crisis has had a hard impact on the Costa Rican real estate market. We have seen that there are not only less buyers, but the ones that are able are more reluctant to move forward and invest. The cash purchase days are long gone, and now financing is going to take on a much more relevant role than ever before. Unfortunately, the credit crisis has forced lenders to restrict their programs for the most qualified applicants.

Many developers and individual home owners have resorted to providing their own financing programs. This is an effective way to offer potential buyers a solution that will most likely be a deciding factor to close the deal. However, there are important considerations to take into account when a developer financing program is put in place:

1. What is the purpose of a developer’s financing program? While some will choose to put a program in place with the specific purpose of being able to sell their units, others may decide to design the program to also render profits.
   
2. Developer financing should serve as a temporary solution for your potential buyers. Why? Because the last thing a developer wants to do is compromise its own equity to be able to sell. The typical program should be a short term loan (usually a balloon type) with a hefty down payment to help secure the collateral. You as the seller want to make sure you are paid as quickly as possible.
   
3. How will risk be assessed? This is one of the most relevant issues, usually overlooked, that needs to be taken into account. Developer financing is usually the last option, so by the time the decision to go down that road has been made, the need to sell overshadows the fact that you as a developer/owner will be assuming a very tangible risk. It is common to reduce the application process to require as little as possible to decrease the time needed to close. This may have a very high cost if poorly qualified borrowers are not properly filtered.
   
4. Once the loan has closed, a structure must be in place to properly service it. This includes making sure the loan payments are properly received, delinquent accounts are brought to date and a well documented record of the balance sheet history is in place. An exit strategy is also critical to reduce risk. Will you as a developer want to keep the loans originated on your balance sheet until they expire? If the loan was not originated in full compliance with lending standards, chances are you will have to keep it until that happens, or until a more attractive option is available for the borrower to refinance.
   
   

The Mortgage Alliance Program (MAP) has a solution for any developer or individual homeowner offering financing to a buyer. This new service includes:

1. Properly structuring a loan program in accordance with the current lending standards of local and U.S. lenders.
   
2. Coordinating loan applications to facilitate the granting of loans to qualified borrowers - the underwriting process is performed by an accredited U.S. underwriter - all loans will be processed in a standard form to be in compliance with local and U.S. lender regulations. Subject to local and U.S. lender regulations, this may allow you to eventually sell this loan in the secondary market.
   
3. Loan servicing - MAP has a service platform to provide efficient loan servicing for your loans once they have been closed.
   

If you would like to obtain further information regarding our developer financing services - email us at: fvega@stewartlat.com

New Members

We welcome the following real estate companies that have joined the Mortgage Alliance Program

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Upcoming Events

“BAULA” TURTLE RESOLUTION - FEBRUARY 26TH

• Scope of the “Sala IV” Resolution
  
• Impact on Private Property
  
• Defense Strategy
  
  

SARDINAL - THE DISPUTE FOR WATER - FEBRUARY 27TH

• Scope of the “Sala IV” Resolution
  
• Resolution’s Impact on real estate developments
  
• Development Strategy
  
  

MORE DETAILS TO COME SOON!

This newsletter is for informational purposes only, and does not constitute either legal or financial advice. It is based on material that we believe to be reliable. While every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors.