A Loan We Declined: Potential Rezoning Project

Situation

We recently received a request to provide a loan secured by a single-family residence in Salt Lake County, Utah. The collateral was located in an area where the government had discussed the possibility of rezoning. While this can lead to increases in prices, the zoning had not yet been passed.

Due Diligence

When we reviewed the application we found the borrower was willing to make a cash down payment in excess of our normal requirements. As a result we put the application through our due diligence process and took a closer look at the proposal where further examination revealed the property could have significant upside. However, the purchase price was more than what similarly rezoned properties were worth in nearby areas.

Decision

We were not certain that the loan amount, even after the borrower’s significant down payment, could be recouped from the sale of the collateral. As a result, we passed on the loan.