Question for private/HM lenders: How do you verify the track record of a rehabber?

Question

I would like to find out how private/HM lenders verify the track record of a rehabber.  Your help is highly appreciated!

Sam Craven · Answer

We dont lend hard money but we borrow a lot of it.

When we are bringing on a new lender we provide pictures and financials of past jobs, and in most cases the new lender will verify what we tell them by getting on the MLS and looking at the finished product to make sure that it was actually done, completed, and the numbers match what we told them.

Always ask for referrals from other lenders as well.

Hope that helps!

David Begley · Answer

Ken, I think we're on the same page here, with the exception of our view on the value of the 1040s.  The point I was trying to make was, at the end of the day, most HMLs are going to look to liquidate the asset should the deal go south in a hurry.  That is why I recommended not advancing more than 55%-65% LTV.  I spent 20 years of my career overseeing credit/collateral operations for "a major wholesale bank" and have been involved in the closing and aftermath (collateral liquidation) of over 500 savings and loans and banks in the southeast and liquidation of billions in mortgage collateral.  I know bad bank underwriting when I see it!  For a HML or private lender, should the deal go bad, a 1040 or W2 isn't going to mitigate your risk although it may have provided a little psychological balm initially.  It really doesn't matter if the borrower may have external means to scrape up interest payments while the asset deteriorates.  I'll bet you'd want to take control of that collateral as soon as possible in order to liquidate and recoup your investment.

Kate Lee · Answer

@Jeremy Tillotson  @Sam Craven  @Derek Tyler  Does any title company allow you to do name search?  I went on First AM title company, it seems that I have to have an account in order to do anything.  Which title company do you use?  Thanks for the info.!

Account Closed · Answer

It's pretty easy to log into the title company and run a name search.  You can see the all the properties bought and sold under the company name you intend to lend to.  Then run the addresses through the MLS and see pics and details.

Derek T. · Answer

Ask for their before/after pics,  spreadsheets for each investment to review numbers,  references and list of licensed contractors they use. Their title company,  hazard insurance provider,  Realtors,  etc could provide good insight as well if you feel the need to go further.  Check cash reserves for security and tax returns if you feel the need to fully vet the person.   I've never had an issue providing all of these items to show I'm financially strong and on the up and up.

Cal C. · Answer

They should be in your email.  Unless you only see them at the closing table.

David Begley · Answer

I've not encountered a HML that requests Personal and/or Business Tax returns or W2s - that's why they're going to a HML.  HMLs are typically asset based - if borrowers had the requisite tax returns and W2s they likely wouldn't need a HML.  I personally would avoid a HML that mirrors a Conventional bank's onerous underwriting requirements because they likely couldn't close in the needed 5-10 day period either.

Kate Lee · Answer

Account Closed   Thank you for all your help!  I requested the following docs from the borrower yesterday.

1. Personal tax return and business tax return of 2014.

2. W2 or 1099 for 2014 and 2013.

3. Appraisal of the ARV if you got one from applying for the first position loan.

4. Break down of the repair cost.

5. For the closed deals, please provide lender reference, title companies or final HUDs, hazard insurance provider, realtors info.

Derek Walvoord · Answer

When I applied for a hard  money loan, I put my website in the application, which shows addresses and before and after pics for a bunch of the rehabs I have done.  I did not have to show HUDS, but Account Closed, that is a really good idea.  I wonder if I could fine all of mine quickly. . . .

It might take me little time to round them up.

Kate Lee · Answer

Jeff S Na  Thank you for such detailed analysis!  I've met the borrower a few times in the local investor's Meetups, and was told he and his partner have been in the business for some years.  That's why I requested them to show me the docs on the closed deals to check their credentials.  I was also planning to have them take me to the project site to do a walk through so I can get a good idea of the rehab cost.  The property is in a hot market of CA, not far from where I am.  But of course there are some steps I need to take before lending in second position, and it's always good to know the borrower's true qualification.  I'm in the process to establish that business relationship.  I'm aware of the risks of being in the second position and that's why a premium has to be charged to compensate for the risks.  I'm not lending to projects anywhere out of my sight.  The borrower is also open to equity sharing.  Thanks again for sharing your insight!  That's very helpful.

Question for private/HM lenders: How do you verify the track record of a rehabber?

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