All Forum Posts by: Jeff S.

I took a quick look, @Torianne Baley:

1) With short-term treasuries now paying around 4.5%, guaranteed by the USG, why would anyone loan to you at 5%? HML rates are currently around 11% plus a few points. You can stop right there. On its face, this is a scam. Stop reading if you want.

2) I couldn’t guess what “There is a 6 months of grace period before interest payment begins” means.

3) They call their $3555 charge a “Loan Fee,” stated a few lines up as 2%. 2% of $235,000 (loan amount) is $4470.

4) Do you seriously believe the loan fee, “… IS 100% REFUNDABLE IF THERE IS ANY DEFAULT FROM THEPART OF THE LENDER OR IF THE BORROWER CHOOSES TO TERMINATE THE LOAN.”

5) It’s okay to pay an appraiser directly. Beyond that, sending upfront fees to a lender is not okay. Lenders get paid at closing.

Consider developing a better process to find and vet your lenders, Torianne. No one here will, or should, do your work.

Assuming these are for short-term loans, such as for flips, @Keith Groshans, you could do what we do and let the borrower keep the money and pay everything when they sell the property. In this case, since they are borrowing their payments, these would get added to the principal balance each month, and interest would be calculated on that.

If, for example, the interest rate on the note were 10%, they would implicitly be borrowing their payments at that rate. If you do the math, since your borrower is paying interest on interest, it raises your effective interest rate by about a point. Thus, your return would be about 11%. With some more math, you’ll see that the extra amount in dollars is not that much compared to the total amount of interest paid. Borrowers like that.

Since money is the lifeblood of all house flips, I consider this a win-win for everyone. It enables us to keep our money working at our current rate, and it puts more money in the hands of the rehabber. I argue that more money in the hands of the rehabber makes the loan safer. Idle money is the quickest path to low returns and does no good for anyone. Since few lenders have the stomach to do this, it’s also been a great competitive advantage for our business.

This horrifies almost every private lender I know. They argue that a missed payment is your best notice that there is a problem brewing. As small lenders, we’re in frequent contact with our borrowers, so we usually know how they’re doing. Can you imagine actually communicating with your borrower? I suppose if we had hundreds of loans out, this would be impractical. If we had hundreds of loans out, we’d have enough monthly income to aggregate the payments into additional loans—but we don’t.

If you do this, your note will have to have a compounding clause in it, provided by your lending attorney. Your attorney should also determine if this is legal in the state(s) you’re lending in. Also, note that if you use a loan servicer, some can’t handle compound interest. It’s high math, I guess.

This preliminary injunction has been stayed. The CTA is reinstated, and we are back to being required to register.

According to Doss Law:

As of December 23, 2024, the U.S. Court of Appeals for the Fifth Circuit issued a stay of the nationwide preliminary injunction previously granted by the U.S. District Court for the Eastern District of Texas in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.). This decision effectively reinstates the Corporate Transparency Act (CTA) and its Beneficial Ownership Information (BOI) reporting requirements nationwide, pending the Department of the Treasury’s appeal resolution.

Click here for the full article which includes the new reporting deadlines.

@Mike Grudzien wrote:

“Have you tried networking locally in real estate groups, real estate investment groups, landlord associations, etc. to get personal, local, verifiable, recommendations?”

Are you actually recommending meeting a potential lender face-to-face and forming a relationship? C’mon, Mike, let’s not be ridiculous. How could this possibly be safer than responding to a random website and doing business anonymously with a stranger? Especially since there are so few private lenders out there that it’s almost impossible to find a local lender who would want to meet you.

Okay, tongue out of cheek.

Finding a lender will take work and is not something you necessarily want to do from your couch, @Kevin Benjamin. For the same reason, we find all our borrowers at local REI clubs. If there appears to be a match, we will go to lunch with them to get to know one another. Though never certain, this is the safest way to get a sense of each other's experience and integrity. You won't get this off the web.

If you insist, however, make sure you understand licensing in the state where your property is located. Some states require a license of some sort to make any real estate loan. Some states have no requirement. Similarly, if a lender only makes business-purpose loans, they will not need an NMLS registration in any state. Thus, depending on the state and the type of loans they make—business only or consumer-purpose—there could be a good reason to show neither a state license nor an NMLS number. Do your homework first.

And don’t rely on the BBB. They’ve been debunked a thousand times. First, not all businesses belong—we don’t—and they tend to give good ratings to anyone current on their membership fees.

Similarly, it’s easy to check a photo. Take a screenshot and paste the headshot into Google Images. It will show other locations on the web, hopefully of the same person. For example, my website photo will also come up on LinkedIn. I do this to show credibility. Plus, I’m incredibly handsome. Some legitimate lenders will use stock photos. This is not necessarily a red flag.

The safest thing you can do when working with any lender is to make it clear at the beginning that you will not be sending them any money upfront. The lender gets paid at closing through escrow, title, or a closing attorney, as customary in the property’s location.

Better yet, take Mike’s excellent advice above.

I recommend you do it yourself, @Helene Zernik. I also recommend you do your own dental work.

Which of these makes sense?

With many heirs and a 50-year history, you have no idea what skeletons could be hiding in the closets. This is precisely why everyone should insist on title insurance.

The median price of a home in Los Angeles is now around $1 million. Does it make sense to cheap out over the few thousand dollars it will cost to go through a proper escrow and title process? Do you want a disgruntled heir contesting the transfer sometime down the line?

I appreciate your ready-fire-aim approach, @Brendan Duggan, but you’re likely creating loans that might only be saleable at a discount. I’m sure that’s not your intent.

Many large private lenders will work with smaller lenders as correspondents. Here you would continue to find borrowers and fund loans with your own money. However, you would sell these loans at closing for a commission or fee. To do this, you would use the underwriting and loan requirements provided by your loan purchaser, which may or may not align with your current criteria. Additionally, your loan purchaser would supply the necessary documentation. Correspondent lending typically takes one of two forms: delegated or non-delegated.

One approach is to obtain your loan purchaser’s criteria and documentation, (hopefully) adhere to them scrupulously, and originate the loans yourself. Using this delegated approach, you would then present these to your purchaser although there is a risk that they might reject a loan. Alternatively, some purchasers want to control the process in return for more certainty.

For a non-delegated correspondent loan, the loan purchaser will get involved and direct all processing decisions. This effectively guarantees they will buy the loan at closing. Obviously, they will pay less for these loans because of the resources they spend upfront.

Most of the larger private lending firms will participate in correspondent loans. It’s one way they find borrowers. You can go to the AAPL member directory or NPLA and find many. Alternately, if you’re going to do this at volume, and you’ll have to since margins here are thin, I would attend some of the lender conferences. All the big guys attend these. Speak to everyone.

You might investigate a wholesale line of credit if you are doing enough volume. This has a cost but nothing close to what you’d have to pay investors in a pool, which is something else you mentioned. Pooling investor money into a debt fund is another option for you, but seems outside of your current approach, Brendan.  Good luck to you.

Even though I know you’re writing tongue-in-cheek, @Scott Trench, I think it’s a great idea. But why stop there?

How about a fine for those who use ChatGPT to write those generic threads like “How to Get Into Private Lending” or “How Great Private Lending Is”?

If I see another nonsensical, made-up definition explaining the difference between a Hard Money lender and a Private Money lender, I think I’ll scream. There should be an automatic double-lifetime BP ban for the offender, as well as anyone who responds to the thread—and maybe their entire family and all friends. (Okay, I’ll back off on the family and friends.)

When I dedicate 45 minutes giving thoughtful advice in response to a DM, and the person doesn’t even respond with a thank you, they should owe me $125. BP can keep 10% as a service fee.  Same with anyone who gets 20 experienced-backed responses to their question yet ghosts the thread.

Let me guess, @Glenn N., the latest "guru" lawyer just rolled through town convincing the tin-foil-hat crowd that everyone is coming after them, and they need to pay him to arrange privacy and asset protection. Why else would they move their LLC?

I assume you are using professionally prepared loan documents, yes? These will certainly specify the jurisdiction and venue for any disputes, as well as the governing law. This doesn't change with your borrower's LLC. I hope you made it convenient for yourself.

Your loan documents should (or better) contain a due-on-sale clause. This allows you to call a default if your borrower transfers property ownership to another entity. Moving the LLC neither changes your loan, nor your lien, nor the personal guarantee I trust you obtained. Why are you losing sleep?

I wonder if your borrower's lawyer explained that if they move their LLC, they must still register as a foreign entity in the state where the property is located to defend against any actions you might bring. Congratulate them—they now get to file two sets of tax returns and pay the associated taxes for each.

Confirm all of this with a lawyer if it bothers you. Frankly, I wouldn’t lose a minute’s sleep over it.

It should also be noted that there is often a difference between the borrower and the guarantor.

If the loan is made to an entity (LLC, corporation, trust, etc.)—as long as it's not to a retirement plan—the lender will almost certainly require a separate guarantee. This guarantor, who may be an individual or another entity, will be responsible for the difference between what is owed to the lender to make them whole and what has been recovered.

If the lender makes the loan to an individual (natural person), this person is implicitly the guarantor via the note, and no separate guarantee is needed. In fact, a personal guarantee would be irrelevant if pursued in this scenario.

This doesn’t happen often, but as lenders, we're leery of doing business with anyone who won’t agree to a guarantee. In our view, it tells us something about their integrity.

“WOKE comes to Hardmoney Resi trans loans LOL”

Indeed, @Jay Hinrichs.

Hard Money is derogatory.

Private Money is deceptive.

No one knows what a Bridge Loan is.

Now we do Residential Transition Loans.

I’m afraid we will run out of space on our business card. 🤣