Q. What is a "gap loan?"
A. A developer of income-producing property may have certain leasing requirements placed on him by a permanent lender before the lender will grant the total permanent lander loan. The most common requirement loan. The most common requirement is that the property must be 50 per cent leased before the loan is made. This is known as a "leasing holdback." To allow the developer to finish his project even though he doesn't meet the permanent lender's leasing requirements, the deloper will arrange for a loan from another source for an interim period equal to the amount of the "leasing holdback." This is a "gap loan" although it may extend for some time if the project doesn't readily meet the permanent lender's leasing requirements.
The developer usually has to pay a commitment fee to secure the right to use the "gap loan" if he needs it. The interest rate will be higher than that of the permanent loan. (A "gap loan" msay sometimes also be used to denote secondary financing to provide funds to meet the difference between the total of invested equity and a first mortgage and total cost of development).
Q. Can you explain something that keeps croping up in conversations about owning real estate? I'm not sure what it means. What is ownership in fee?
A. It's ownership in which the owner is entitled to the entire property, with unconditional power of disposition during his life. It decends to his heir and legal representatives upon his death intestate (without a will). It's the largest estate and most extensive interest that can be enjoyed in the real estate. It's also called "fee simple" and "fee simple absolute."
Earl A. Snyer answers questions only in this column. His address: 14909 Kalmia Dr., Laurel, Md. 20810