There are two reasons I regret not having served in the military. The first is that military service gives people license to bend the English language. Why say ‘A’, ‘F’ or ‘R’, if you can say alpha, foxtrot or Romeo? The -FU acronyms, like SNAFU, FUBAR and TARFU, are like rhyming slang with free beer and spanking. And who can beat BOHICA, or Bend Over, Here it Comes Again?
When linguists get drunk, they play a game called demonstrate-a-phonological-process-while-pronouncing-its-name. ‘Lenition’ becomes ‘lenihion’. ‘Apocope’ becomes ‘apocop’. ‘Syncope’ becomes ‘s-cope’. ‘Metathesis’ becomes ‘methasetis’. ‘Reduplication’ becomes ‘reduduplication’. A phonologist once wrote a paper called Re Reduplication. I understand that she wrote it drunk, but edited it sober.
(First semester second year of grad school, I tried to teach a classmate from New Orleans Wackernagel’s Position. She told me that we couldn’t do that until she knew my mother’s maiden name.)
The second-most-quoted Yogi Berrism is, ‘It’s like déjà vu all over again.’ Would he have said, ‘It’s like BOHICA all over again’, if he knew the term? After all, it would be the same as déjà vu, with a different body part. It would be just as redundant as the original, and it would say the same thing, twice, just as many times.
In January 2020, shortly before the Pandemic, I refinanced my park in Central New York. The loans on both of my parks are held by a regional bank that has built its reputation through long-term client relationships, conservative asset management and well-run operations. So you can imagine how surprised I was in 2020, when that bank screwed me when I refinanced the park. I was doubly surprised this week, when the same bank tried to get slick when they restructured the loan on my other park.
It was like BOHICA all over again.
I wrote about the first refinancing shortly after it happened. Both parks are financed by twenty-five-year notes, with interest rates that reset every five years to a spread over a benchmark rate. For the first six years, a prepayment penalty applies if I refinance the loan with a bank other than the original lender. The prepayment penalty steps down by one percentage point each year. After the sixth year, there is no prepayment penalty for the rest of the life of the loan. I bought the park in central New York in 2013. In the fifth year of ownership, the rate reset to a rate that was significantly higher than what it had been for the first five years. I bit the bullet for the year after the reset, paid the higher rate, and waited for the prepayment penalty to disappear. At the end of the sixth year, I shopped around for refinancing deals. A small bank in Indiana said that it could refinance the park for a lower rate, on a nonrecourse basis. I showed the offer to the original bank, and they said that they could match it.
Nonrecourse debt is debt that is secured by specified collateral, but not by the borrower’s personal guarantee. If you walk away from a nonrecourse loan secured by a mortgage on your house, the bank can seize the house, but cannot come after you personally. On a recourse loan, they can sue you if the value of the house is less than the outstanding principal amount on the note. Lenders that finance larger loans, like conduit loans, lend on a nonrecourse basis. Local and regional banks usually make recourse loans. It is generally better for a borrower to borrow on a nonrecourse basis. I was pleasantly surprised by the Indiana bank’s offer, and expected my bank to match all of the terms thereof because, well, they said they would do that.
Q: Isn’t nonrecourse lending what let Trump skip out on debt obligations, leaving lenders and investors holding the bag?
A: Yep.
The day before closing, my loan officer sent me draft documents. Per our discussions, the loan was nonrecourse. However, the lawyers had inserted a ‘bad-boy’ carve-out to the nonrecourse provision that effectively emasculated it.[1] When I called the attorney who had drafted the document to protest, he said, ‘We put it in there to protect our client’s interest’. Well, duh. What he really meant was, ‘You’re fucked, mate. Take it or leave it’. Since I had broken off communication with the Indiana bank and wanted to get the deal done, I bent over, grabbed my ankles, and signed the papers.
I bought my park in northern New York in the spring of 2018. Near the end of 2022, I realized that interest rates had gone up and that the rate on the loan for that park would reset in May of this year. So I called a loan broker, looked at other deals, and called the loan officer at my current bank. She suggested an allonge. I thought that that was rather forward of her – our relationship is entirely professional, I am happily married and we had never met in person – until she explained to me that an allonge is a loan modification. If I signed a few documents, we could let the rate reset and stretch the amortization, although not the maturity date. I would need to refinance in 2043, but monthly payments would decrease in the meantime. All other terms of the loan would remain the same. ‘Excellent!’, I said. ‘I will send you documents next week’, she said.
The documents arrived the day before yesterday. When I read them, I saw that they tried to slip it to me again.
The existing note has five-year interest rate resets and a six-year step-down prepayment penalty. After the sixth year, prepayment penalties evaporate. The draft allonge re-sets the prepayment penalty to start this year and end in 2028. When I read that, I said, ‘Fuck these people. And their friends in America.’ Then, I pulled up the email chain in which we had discussed the terms of the allonge and started banging on the keyboard:
From the email chain forwarded below and from our telephone discussions, I understood that the allonge would increase the amortization to 25 years from the reset date and would not reinstate the prepayment penalties in the current note. Under the current note, prepayment penalties disappear a year after the first five-year reset, i.e. in 2024.
The draft allonge that you sent today institutes a new five-year series of stepped down prepayment penalties starting in 2023 and ending in 2028. That is not consistent with what I understood our agreement to be. If you remove that provision, I can sign it.
I followed up with a phone call eighteen hours later and got voice mail. Then, late yesterday, my phone farted and this came out:
I am so very sorry for the oversight on the allonge. A revised document has been requested which I will forward to you as soon as I have it. The reset of the prepayment premium will be removed and it will be left as originally set.
Thank you for questioning and for your understanding.
So, that’s one for the good guys. But I have less of a warm fuzzy feeling for the regional lender that sees itself as a custodian of long-term customer relationships and works hard to maintain its deep roots in the community than I used to.
The second reason I regret not having served in the military is that I regret not having served. Our country is not perfect, but it’s pretty good. I have benefited from property rights, the rule of law, a constitution that usually guarantees freedom of expression and tolerance of differences to most people, and a civil society that usually works. It is only fair that people who benefit from these civic goods give something back.
[1] A ‘bad-boy’ carve out is a carve-out that prevents a borrower from benefiting from a nonrecourse provision to the extent that a default is the borrower’s fault. For example, some bad-boy carve-outs make borrowers personally liable if they purposefully, recklessly or negligently breach certain loan covenants, or if they declare bankruptcy in certain contexts. The bad boy carve-out inserted by my bank’s lawyers said that I would be personally liable for the debt if for any reason the business did not have money to make payments on the loan. That is an exception that eats the rule.
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