Disclosure Statement

[Jorge Caicedo]

Hello BP'ers, I read an article by Alan Cowgill about how if you're gonna use a private lender for your project, you need a disclosure statement..He said in the disclosure you have to put that there's a risk involved as in all investments.

My question is this: If I'm doing a fix and flip and am willing to pay the private lender on their terms, what risk do they undertake? Their position is secured by a Trust Deed in their name w/ a promissory note and if I default on my payments, they can foreclose like any lender would....Again, what is the risk for them?

[Bill Gulley]

As I said, with one private lender you are not under SEC, now if you get a pool of lenders you'll have SEC issues. I wasn't overly impressed with the blog, as it sounded as if security disclosures were always necessary, but it did have some good aspects to address with a pool of lenders. $2,000,000 is a small amount to have on tap, they may have not been qualified investors. If you notice, the author has a corporation, that is a totally different animal having stock and any loan to a corp, secured or not can be seen as a bond.

Problem with blogs is they are usually only the tip of an issue, designed to draw attention as to have the author perceived as some expert, the expertise or knowledge of the author usually leading to some marketing agenda.

When you read any blog, look to who the author is, the difficulty or sophistication of the subject matter, their experience and education as well as certifications in that area and the nature of the blog, the intent behind it, is it just informational or is there some expectation of promoting a company or product or related subject matter?

Besides, if you're going to be borrowing from an individual, you need to see an attorney anyway.