HELP!!! What can I do if borrower is not able to pay back??

[Sean Yang]

Hi all, I think I am in some serious trouble now and really need your guys' input!! About a year ago I got connected to a loan broker here in BP who was posting ads looking for private money to fund local flippers- so called gap financing. After a few emails and a face-to-face meeting, I was sold on this idea and started to invest money with him. It was a flat rate loan with my name on the 2nd lien position. Loan was structured for 12mo as stated on the Note, meaning the full amount is due either upon the sales of that project or by the end of 12 months, whichever occurs first. I received a Promissory Note, a Deed of Trust, and a personal Guaranty from the borrower. In the first a few months, the broker sent me monthly updates. Although the project was a bit delayed, he promised me it's looking fantastic and nothing to worry about.

I got quite busy later of the year and stopped following up with him; however, things started to go downhill from here... Earlier this month, I pulled the Note and noticed the payment due date was only a few weeks away but the project was still not listed for sale. I started calling the broker but he's not responding to any of the emails/texts/calls. I felt something was wrong and immediately called the escrow company who gave me the borrower's phone number. I called the borrower directly and was told things were not looking good. His company was mismanaged and lost quite bit of money and also he's stuck with a few projects now. He borrowed most 1st loans from a hard money lender who is going to begin foreclosure process if not paid by Jan 2018. He said he's trying to refinance one of the projects but not sure if he's qualified. He's asking me if I have a lot more money to buy out the 1st loan and I told him no. He said he takes his reputation and integrity seriously and will try to pay me back the principle if we work together, but I just don't know how that would happen if things are falling apart like he described. 

So I guess my question is- what are my options now? I know being on a 2nd position is quite weak but is there something else I can do instead of just waiting? I have a Promissory Note, a Deed of Trust, and a personal Guaranty but not sure what I can do with these. I guess I can take them to the court and go after his personal assets? That might be the last straw but I really hope there is some other solution that could minimize both losses. Any advice is welcome! Thank you BP!

[Jay Hinrichs]

few things..  Gap funding and second position loans are highly highly highly risky.. unless your Very rich and can easily stroke a check to take the first out.. that's number one.

2. in CA if its a balloon payment I am pretty sure ( at least it use to be this way) that you must give a notice in writing of the balloon 60 to 90 days before its due.. if you don't you can't forclose and when you figure out you can't forclose then you give the notice and your 90 days starts.. so you may want to see if the first lender gave his notice ... if not that may have bought you some time.

3. personal gurantee's are WORTHLESS 95% of the time.. in these scenarios remember the borrower probably has little to no money in the deal since he has a first and a second.

4. contact senior lender pronto and see if you can work something out if you think there is equity to protect yourself.. normally there is not... if the project is buggered up and default interest and such is tolling by the time you get in the deal equity is gone.

But do drive by walk property and figure out what you got..

lastly most brokers on BP if they are not working with a major corporation you want to really be careful of some are flat scammers  although it looks like this broker actually did the deal made their fee's and poof gone.