Broker Gets a Loan for You?

Question

Hi BP,

I was trying to determine ownership of a property. The DOT and the LLC address pointed to a brokerage firm (and one of their brokers signed the loan). I called the person who signed the DOT at the brokerage and he told me who the owner was and that since they were an out-out-of-state first time buyer he couldn't qualify for a loan "so instead he coaxed us into signing a non-recourse loan for him"

Is this what it sounds like?

Dovid Staples · Answer

very interesting

Christopher Phillips · Answer

@Dovid Staples

No. Not common. Must have been a special situation.

Dovid Staples · Answer

@Christopher Phillips I mean is it common for a broker to get a loan in their name on behalf of the buyer

Christopher Phillips · Answer

@Dovid Staples

Not very common anymore. Too much risk. If you use securities and the stock or bond market goes down then there's nothing backing the loan anymore. Wells Fargo says for  non recourse is about 29 percent of the commercial market. Mostly commercial mortgage backed securities companies and insurance companies.

The benefit is that there's no personal liability. The lender can only take the pledged collateral, not come looking for more money.

Dovid Staples · Answer

I understand @Christopher Phillips, but the brokerage firm does not  own the asset. They only got the loan for the actual owner. I wanted to know how common this sort of thing is

Christopher Phillips · Answer

@Dovid Staples

A non-recourse loan is just a loan backed by an asset. So, you would put up and asset as collateral that can be forfeited if you stop making payments on the loan. An example, if I can't get a loan due to being self employed or not working at all, I could put up my yacht as collateral for the loan. If I stop making payments they take my yacht.

If it is with a brokerage firm, they probably put up some securities as collateral.