Collateralizing Owner finance notes

10 Replies

Any recommendations of lenders that will use a note as collateral on a line of credit?
In other words I have a few Owner finance notes that I’m looking to leverage for cash. Thanks!

@Brad Crawford
Have you considered selling partials on them?

I have never hypothecated a note but in reading here on BP best to talk to local lenders in the area to see if they will lend on it.

@Brad Crawford unless your notes are in the millions of dollars I think most banks would not lend on it.  There's always exceptions to everything but I think this might be challenging the way you described it.  Have you thought about just selling your notes?  There are a few servicing companies that will buy notes and that could give you a quick amount of cash.  Just an idea.  Thanks!

If the Notes are located in Texas I've heard BTH Bank and Texas Brand Bank although I've never used either one. However I've often times considered it.

Originally posted by @Brad Crawford :

Any recommendations of lenders that will use a note as collateral on a line of credit?
In other words I have a few Owner finance notes that I’m looking to leverage for cash. Thanks!

@Abel T.   

@Brad Crawford Unfortunately don't have anything too helpful, but 2 things I've seen are

1) I recently met with a rehabber in San Antonio who owner finances homes. He has a long-standing relationship with a local bank who finances most of their flips, so because the bank knew a lot about the properties already, and they have a long relationship, they were willing to finance the notes

2) I've seen several note funds on BP who have investors, but instead of a typical profit split arrangement, the fund just promises the investor a fixed return (8-12%) and a senior, unsecured claim against the fund's assets (i.e., the investors are the lenders). Wonder if you could do the same if your notes are in an LLC, and the LLC doesn't have any other debt. Something to think about if you don't get anywhere with the banks..

Thanks for the feedback. I’m considering partials

Thanks @Abel T. they are in an LLC name and it doesn’t have any other debt. Would you know a starting place to finding some of these investor funds you mentioned?

Hi - sure but my point there was maybe a solution is getting private lenders you know to lend to your company (vs a bank)

@Brad Crawford How did your hunt go?? - i see this is an old post. At some point you really have to amortize your underlying lien or you eventually become upside down when your OF buyer makes enough payments. I am currently searching for community banks that will collateralize the underlying debt - although i believe you need a substantial $ amount before they will even consider it. 

@Joe Davis If you don't have a big pool of loans a community bank is about your only option besides private money. If your doing a wrap I don't think any bank will lend on the paper if there is underlying debt. I have a bank that will lend on paper but it has to be in there service area. They will only do 60% LTV on UPB or appraisal/BPO whichever is less and the repayment has to meet a 1.5 DSCR or greater.

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