Questiona about HML (from the lendor side)

[Michael Randle]

Hello Everyone,

My wife and I are coming into some money due to us closing out our re-estate with our move. As such we are weighting our options as what to do with our cash. And while kicking around ideas HML came up. So I want to put some questions to the community, from the lenders point of view.

Now mind you these are going to be rounded numbers, and in no way reflective of the real world. I am not looking for detailed annalists around my numbers but the thought process behind them.

How does a HML protect their investment? I know you want to evaluate the property, the potential ARV, the applicant etc. And I did stumble across a HML that does the loan in multiple payouts depending on the stage in which the rehab is in. I also know the higher % is suppose to be the built in 'buffer' for loan default. But do any HML go further, as in securing a second lien against primary residence or other investment properties? Or as a HML do you just rely on your due diligence and knowledge of the area/property as your safety net?

Do you generally charge a higher % depending on the property and the level of work required? Example, do you charge perhaps 10% on a 100k loan that has an ARV of 130k, perhaps they buy the property for 80k and then drop the other 20k to fix up? And then perhaps 15% on a 50k loan with a 80k ARV, 10k for the property and then 40k in improvements?

What happens when someone eventually fails and you need to move forward with legal action? It seems (at least for the most part) the only money you could recover is that which you could get out of the property. This sort of loops around to the second lien on primary residence or other properties. What happens if you sue, win, and then they declare BK? It would seem to me as a lender you are just out of luck. Which is why I suppose some HML stagger the pay-outs?

I guess the fundamental question is how a HML covers their butts, I know banks do it with just sheer amount of loans, but as a HML you do not get the numbers cushion. And it would seem to me lending anything under 14% would be a risk not worth taking since the stock market itself is Y-o-Y at 14% return.