Senior lender wants proof of gap funds before issuing a commitment letter, and the gap lender will not commit without seeing the senior commitment first.
This is a circular hold that kills files before they start, and the way through it matters because both positions are technically correct. The senior lender is protecting against a borrower who closes the first loan and never arranges the rest of the stack, which happens. The gap lender is protecting against wiring a commitment fee into a deal that never gets its senior piece, which also happens. Neither party is being unreasonable and the file still dies. The assumption doing the most work here is that both commitments have to be final before either one issues, and that is not actually true in every case. Some senior lenders will issue a conditional commitment that acknowledges a gap piece is forthcoming, which is enough for the gap lender to issue their own conditional commitment, and the two conditions cancel each other when both letters land in escrow simultaneously. The mechanics require a closing coordinator who has done this before, because the letters have to arrive in the right order or one party reads the other's condition as unsatisfied. The gap lender's counsel also needs to confirm the senior commitment is not conditioned on the absence of junior liens, because that condition, which appears more often than it should, makes the entire structure impossible regardless of letter order. What does the senior commitment letter actually say about subordinate financing, and has the gap lender seen that language yet?
