All Forum Posts by: Jeff S.

I won’t equivocate. There is no “Most likely …” or “Chances are …” here, @Eric Coats. This is an outright scam.

Not only don’t private lenders advertise like this, but they also don’t offer money at 5% and never have. Consider; with today’s prime rate at 7.5%, their cost of money will be higher. And though it’s regional, you can typically expect to pay in the ballpark of 10% or more plus a few points for a private loan.

Don’t think too, that you’re safe because a lender says they will send the money directly to the seller. This is another clear sign of a crook. Real lenders don’t want to get ripped off either and will only fund through a title company. Never to a seller.

You will not get far with this scammer. What they really want is your personal financial info, which has value, and more importantly, they want an upfront fee. Period. Rest assured they will then disappear.

The web is not the place to find your lenders, Eric. Way too many scams out there and it’s almost impossible to tell the good from the bad. Even the lender list on BP is not vetted.

Like much in real estate, lending is a business based on relationships, not online anonymity. Face-to-face at local real estate clubs is your best bet. Here, you’ll be able to ask others in the club for recommendations in addition to the club operator, who will know the reputable lenders that regularly attend. Prepare a list of informed questions, such as these, that you can ask potential lenders (at lunch!!).

Good luck to you.

I’m shocked, shocked at this Jay. 😱😱😱

Actually, nothing surprises me anymore and I’m well aware that uninformed lenders pull this crap. The first question a potential investor should then ask is, “Assuming the borrower doesn’t contest this and sue your butt off, you’re OK taking over the property subject to all liens, lawsuits, claims, and title issues?”

I guess either some lenders are, or they will find out.

To add, @Andrew Angell, a secured loan is one in which you have direct recourse to potentially own the property. This means you hold a note and a recorded deed of trust or mortgage (state dependent) naming you as the lender.

A note alone defines the terms of the loan and is simply a promise to repay. It's an IOU and gives you the right to sue in court for the amount owed, like any other debt, but not the right to foreclose. If you sue and win a judgment against your borrower, you might never recover a dime. This is the position this company is offering you.

A recorded DOT or mortgage enables you to foreclose on the property under a default, and either own it or get paid back at a public auction. Without the mortgage or deed of trust, you cannot foreclose.

When/if you foreclose, the property listed on the mortgage will be put up for public auction. This is sometimes called a Sheriff Sale or Courthouse Step auction. The minimum price the auctioneer will accept is set by you, the lender, in accordance with the law. If the property sells at this price or higher you get repaid only what you are owed, and the successful auction bidder gets the property. If the property does not sell, you will own it. Lots, lots, lots more to this but that’s the bare minimum.

A quitclaim deed defines the current owner of the property. This too is a recorded document. Showing you a copy of a quitclaim deed is not proof of ownership. For proof, you or your title company would go to the County Recorder, or whatever they call it in your state, and request a certified copy of the last recorded quitclaim deed.

Providing you with a signed, unrecorded quitclaim deed that you can record yourself if your borrower defaults is completely unenforceable and a worthless piece of paper. If contested, there is not a judge in the world that would accept this because it subverts your borrower’s foreclosure rights, which are substantial. This is not a substitute for an enforceable mortgage.

These guys might be good payers and as honest as the day is long. Everyone here has been trying to point out your risks, however. With all due respect, you seem to be either insistent or oblivious. It’s your money, but this is not the way to lend it safely.

Syndications with established operators are fine and may be best for you. There’s a whole world to passive investing like this and it’s not limited to lending. Alternately, first-position loans to LOCAL experienced house flippers, secured against LOCAL properties, are the safest way to make a private loan as far as we’re concerned. That’s what we do.

Good luck to you, Andrew.

Yes, of course, individuals can invest with hard money lenders, @Asim Sheikh. In fact, up until about 6 years ago, most HMLs obtained their money using syndicated investment funds. Then Wall Street, some smaller banks, and many insurance companies stepped in to provide money. As a result, fewer HMLs used the syndicated fund model. The pendulum lately has been swinging.

When COVID hit a few years ago Wall Street and many other institutional investors shuttered their HML support leaving many in a lurch. Months later they returned. Then when the Fed started raising rates earlier this year Wall Street had other shiny objects to chase and all but shut its HML support down again. As a result, some HLMs had to close their doors. Rest assured that everyone using this model is fed up.

The name of the game now, as it probably should have always been, is diversification. Many more HMLs are now actively forming investor-sponsored mortgage funds than in recent years in addition to obtaining money thru the large, fickle, institutional investors. It was never difficult, but if you look around, you will be able to find a fund to invest in. Being accredited is helpful but not always required.

Of course, there are still brokers who fractional their loans enabling you to participate with other investors in specific loans on specific properties. Slightly less diversification, but a middle ground between a fund and whole note investing.

(As an aside, and to clarify, fund managers make money on the spread between the face of the loan and the investor return, as well as fees – which can be substantial. Arbitrage is a simultaneous transaction between two or more markets. This has nothing to do with lending.)

You can choose any name you want so long as it’s not misleading, @Rahnesha White. Your secretary of state will have a list of prohibited words. For example, you can’t call yourself a bank unless you are one.

I have experience using the address in the name of the LLC and I strongly recommend against it because it will confuse the post office.

If you use 123 Main Street, LLC but want your mail delivered to 1313 S. Harbor Blvd., the address might look like this:

123 Main Street, LLC

1313 S. Harbor Blvd.

Anaheim, CA 92801

Half the time mail will be delivered to one address and half to the other. In our case, we have an empty lot that gets a lot of our mail.

Just use something generic and meaningless like Transworld Amalgamated International Acceptances, LLC.

Note too that even if organized out of state, you will pay a minimum $800 franchise fee to CA for each LLC as well as a tax return in both states. Wait until you really need one and don't dwell on it.

Better to spend your time looking for and evaluating properties.

Since around 2016, @Heather Halman, most of the larger lenders get their money from institutional investors such as insurance companies, small banks, Wall Street, etc. With credit checks, tax statements, W2s, etc., their criteria are almost indistinguishable from conventional lenders. You don’t have to put up with that.

Many smaller HMLs won't bother with a credit check. (I wouldn't know what to do with yours if it hit me in the head). Many also do their own evaluations and can fund much faster than the big guys. This can be a big advantage when writing aggressive offers. There are many more advantages to doing business with a small local private/HML, including closer relationships and working with a lender who won't sell the loan.

Go to some local real estate clubs and find your lenders face-to-face. Bring a list of informed questions. Everyone will be different. You should keep a stable of lenders in your back pocket that you can pick and choose from as your deals and their criteria fit.

Looks like there are a handful of private/hard money lenders in Canada listed in the Member Directory for the AAPL. You might do a search there, @Josh Loayza.

You can also try Scotsman Guide but it’s not clear they service any lenders outside of the US.

We form strong relationships will all our borrowers. This means occasionally meeting for lunch, phone calls to sincerely ask how they’re doing (with no mention of business), and taking an obvious interest in their success. Most borrowers are relatively insensitive to a point or percent and understand the value of the relationship. Not everyone is like that, however.

Every once in a while, we’ll meet a prospective borrower who tries to negotiate us down and squeeze every dime out of a deal. This is the telltale sign of someone who couldn’t spell the word “loyalty” and won’t be around very long. Nothing turns us off more and we won't waste the time. Our terms are fixed.

Even when the prices are good, few of us beyond the tightest of tight will shop where the service is lousy. We have no interest in doing business with them and have no problem attracting others who value a relationship.

“What is the best way to protect my private lender ? Put them first on title? Have escrow file a promissory note? what other options do I have?“

No, your lender does not go on title. You or your entity is the borrower and the property owner. That’s who goes on title (typically with a grant deed if in CA). Nor do you record a note. Deeds of trust and mortgages get recorded and by a title company, not escrow. Sorry for all the clarifications.

Yours are good and common questions but not something you should take lightly, @Adam Jones. I can speak for the lending side. This means working with a lending lawyer. These are not real estate attorneys who might do closings, leases, and evictions. Lending lawyers specialize in lending and securities. Both you and your lender should sit with one to understand lending in general as well as usury, licensing, other possible state restrictions, title and hazard insurance, as well as origination in general. There are also lots of books about private lending but they won’t take the place of a real live lending attorney.

The attorney should explain risks to your lender, who I assume is unsophisticated about lending (?), and their options. This might be uncomfortable for you. For example, think twice about asking someone inexperienced to lend to you in second position. They could easily lose all their second-position money if a first-position lender forecloses or if you go bankrupt. You might think this is unlikely, but it really does happen. What if they have to foreclose on you? Or sell their loan?

You'll read here from those who claim all you need is a note and a mortgage or deed of trust (state dependent). And, that you can obtain these from a title company or off the web. To properly protect themself, your lender should use a set of professionally prepared loan documents. These will include a note, mortgage/DOT, personal guarantee, title insurance, fire and hazard insurance, lender instructions, and a host of required disclosures and additional agreements.

You didn’t say who this lender is or where the property is located but be warned that things can get ugly when business mixes with friends or family. That is, it’s super important everyone is protected. There are several respected lending attorneys who work nationally now, and a few are located right in your backyard.

Some lending attorneys now offer online documentation. You provide the loan details, and it spits out a set of state-specific docs. Get your feet wet first and both of you meet with an attorney before you get into that. You don’t want an unsophisticated lender standing in front of a judge claiming they had no idea what you got them into.

Most homes don’t burn down either @Charles Granja, but this is not a reason to avoid fire insurance. Considering the minimal cost, not buying title insurance is the ultimate in being pennywise and pound-foolish.

Five to seven years doesn’t matter. Many years ago, when I sold a flip in Cincinnati title went back 40 years (!!!) and found a cloud. Perhaps atypical, but fortunately I had an owner’s title policy, and my sale went through with little delay.

More recently, we loaned over $600k on a stolen house. In this case, the wholesaler, our borrower (the buyer), and we, all had title insurance. A royal pain and the claim took 4 months, but no one lost a minute of sleep.  Everyone came out whole.

I imagine you could go an entire career and not experience an issue, but title problems are real. Compared to the price of a home, the cost of title insurance is trivial and not something on which you should skimp.