Hypothecate - loan notes

13 Replies

I have no experience with this company, but I did just download their Note Investing Playbook and their website have some nice claims to it:

Gardiner Capital Group

Actually, I'm sorry . . . I wasn't thinking of your question correctly.  I believe Gardiner, like most note companies, BUY notes rather than lending on them.

Originally posted by @Eli Konig :

Hi all, does anyone here know of A platform or an official bank (not individuals) that lends on the collateral of a loan note that you are holding?

Pacific Western Bank and Western Alliance Bank are 2 that I know of.  However the min loan size is $10M+ I believe.  Check with smaller regional banks that have an asset-backed lending program. 

 

@Eli Konig

What type of notes ? 1sts /2nds - owner occupied or non owner occupied?

The answers provide varying results but onset occupied you will have a very hard time finding a lender and Your best bet will be to find private investors.

If it’s a non owner occupied and shorter term some hard money lenders may buy it.

Also as Chad mentioned if it’s one note chances become even less, if you have a large portfolio chances may increase

@Eli Konig Hypothecating notes on a one-off basis is called note-on-note financing and is usually done with commercial mortgages just because the lender has to make the return worth the due diligence. I don’t know how low these go but I’m guessing a lender wouldn’t be interested until the upb of a note is somewhere above $1MM.

For financing portfolios of notes, the lower end of the market is very fragmented. I would call the lower end of the market a loan size under $20MM. When I say loan size I mean the loan from your lender. The lower end of the market is dominated by small banks and credit unions with a few non-bank financing companies sprinkled in. These lenders will typically be interested in hypothecation financing arrangements after establishing a relationship like with a deposit account.

You should look for these lenders to currently have asset based financing platforms in addition to real estate financing. The reason for this is if they’re comfortable financing “assets” they will be closer to understanding note on note financing. Also if they finance single family and commercial real estate then they at least understand the collateral of mortgages.

It would probably take a small book to get all of the information out so let me know if you have any specific questions but that might be enough to get your wheels spinning or at least help narrow down a list of lenders you want to call.

Tom, 

Thanks for raising this
topic. Fascinating and little known financing technique. Used it successfully some 6-7 times to acquire single family homes in and around various states. Working with private lenders - two of whom I met when they carried the first mortgage on properties purchased from them. Amazing opportunities when you have someone who understands capital gains taxes or how to defer them (as the lender) and the flexibility & power behind hypothecation or “walking the note” to finance acquisition of various real estate assets (as the borrower).

Might be fun to compare notes offline sometime.

Cheers & have a great week,

David




Thank you all for the info provided.

Does anyone know of A firm that would lend on A portfolio of tax lien certificates as collateral (A tax certificate is A first lien and most certificates get redeemed at the end but it has its own pros and cons).

Originally posted by @Eli Konig :

Thank you all for the info provided.

Does anyone know of A firm that would lend on A portfolio of tax lien certificates as collateral (A tax certificate is A first lien and most certificates get redeemed at the end but it has its own pros and cons).

dont know anyone but I have to think that would be an extremely difficult thing to pull off.

 

Originally posted by @David M Trapani :

Tom, 

Thanks for raising this
topic. Fascinating and little known financing technique. Used it successfully some 6-7 times to acquire single family homes in and around various states. Working with private lenders - two of whom I met when they carried the first mortgage on properties purchased from them. Amazing opportunities when you have someone who understands capital gains taxes or how to defer them (as the lender) and the flexibility & power behind hypothecation or “walking the note” to finance acquisition of various real estate assets (as the borrower).

Might be fun to compare notes offline sometime.

Cheers & have a great week,

David

WE did this many times back in my Timber days and really the only reason I could do it was a long standing relationship with our local commercial bank and banker .  Along with substantial deposit relationships etc..  But its a fabulous way to unlock equity in existing notes.

For us the scenario went like this.

I buy Timber tract. .. Log it  ( in those days we would get 100% or more of what we paid for the entire tract just out of the log proceeds. Then sell the residual land to a buyer that wants to build on it but needs a year or more to get building permit ( very common in Oregon on rural lands) so we take back a 24 month first Trust deed and note..  I walk that over to my banker and hypothetical it at 50% of face amount of note.. in those days these were 150 to 400k parcels  so we would get 75k to 200k in cash out.. the payment coming in from the seller carry note ( usually 8 to 10% interest) would more than debt service my note at bank rates those days about 7%..  We usually set these up as interest only with the buyer and of course my short term commercial hypothetical was interest only.   So got use of that extra capital to go buy more timber tracts.. did not have to pay tax on it until they buyer of the property paid off..  Risk very low for us and bank..

I suspect at those levels though this is totally relationship banking .. and not something like going out and dialing for dollars with banks that don't know you.. 

 

Why would that be difficult?

lets say A tax lien investor has A portfolio with a face value of lets say 10M in tax certificates, it should be characterized as non paying notes, the lender will request a certificate assignment note that should be held in escrow as collateral and as long as the borrower pays his interest nothing has to happen, if the borrower defaults then the assignment gets recorded.

It become some kind of difficult when certificates start getting redeemed, unless the investor has enough certificates to always put as collateral instead.

The other way, is to add the lender onto the entity that owns the certificates.

In any case, if anyone knows A firm that does so please inform.

Thank you.

@Eli Konig

Most tax liens are under $50k - so an institutional investor would spend more $ tracking and monitoring the portfolio than what’s it’s worth to them - similar to why it’s not common to get loans for under $50k. As others mentioned to get loans on other debt it needs to be typically a min of $10-$20M

Add to the fact it’s delinquent debt which increases risk. Lastly if an investor wanted to lend on it tax liens are passive so they could buy them on their own

If you have $5M bet worth and willing to sign a personal guaranty you can get a loan for whatever you want.

@Eli Konig   - Colonial Funding Group recently launched an "Asset Based Lending Program." From the announcement: 

"our ABLP delivers Real Estate Investors the opportunity to borrow money using their existing Note or Rental Portfolios as collateral for the loan. Our program offers loans starting at $200K."

https://colonialfundinggroup.c...