Too much money from the money lender/investor

Private Lending & Conventional Mortgage Advice
5yFollow

Too much money from the money lender/investor

Ralph Noack
Rental Property Investor · Lynden, Ontario · Member since 2017 · 90 posts · 19 votes

Well, this is awkward.

We just signed up a new investor for our multifamily investment projects to fund the construction side of things. Verbally, the investor agreed to invest $200,000 with us for 2 projects this summer. To be paid out to us in 3 installments as we needed the money to fund the projects. We told them to use their lawyer to draft up the agreement (which may not have been the best thing, but we were thinking that their lawyer would look out for their best interests. In hindsight, we should have at least spelled out what we needed in the document. We certainly shoulder most of the blame for the misunderstanding).

So the financing deal closed today (a week late because their lawyer's office screwed a few things up along the way). It closed after hours (the money was deposited after 6 pm on Friday). And we go to check the account & they deposited the entire $200,000 into our account, all at once. We were supposed to get installments as needed, and it was suggested that it would be $60,000, $70,000 & $70,000 or something similar. And we certainly don't want it all at once because we're paying 12% on the money.

So now its Friday night, lawyer's offices are closed & I'm sitting on a whack of cash that I don't want.

Looking for suggestions from the BP community. What would you do? Perhaps the right question is, What should we do?

(What would you do? is also an interesting question, however, I'm here looking for solid help, not entertainment.)

I'll need to come up with something by Monday. Let's see what BP can come up with.

Thanks

FYI we are located in southern Ontario, Canada

1Reply
24 views

Most Popular Reply

Stephanie MedellinBusiness Member
Mortgage Broker · CA · Member since 2014 · 1k+ posts · 642 votes
5y

@Ralph Noack  What does the agreement say?  If it says the first installment is only supposed to be a certain amount, notify the investor and his or her lawyer, and arrange to wire back the amount that was sent in error.

[email protected]
Stephanie Medellin, Loan Factory58 Reviews
WebsiteView Page
2Reply
See this reply in the discussion

6 Replies

Jump to latestLatest
  • Aaron W.
    Rental Property Investor · Northern Virginia · Member since 2019 · 793 posts · 620 votes
    5y

    @Ralph Noack Because the agreement says the payments would be in installments, you should contact the attorney to let them know about the mistake. As you are paying interest on the funds, you don't want to be paying interest on all of it at once if you don't need it or agreed to it. 

    Make sure to read over the contract to confirm the deposits supposed to be in installments. They may ask you to wire the funds back and make sure they reimburse you for the wire if it was their mistake. Perhaps they will give you some interest free use of the funds.

    Best of luck!

    0Reply
  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 642 votes
    5y

    @Ralph Noack  What does the agreement say?  If it says the first installment is only supposed to be a certain amount, notify the investor and his or her lawyer, and arrange to wire back the amount that was sent in error.

    [email protected]
    Stephanie Medellin, Loan Factory58 Reviews
    WebsiteView Page
    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y

    we call this paying interest on drawn funds.. in the old days HML charged interest on the commitment.. as competition came to the space most HML these days only charge on the drawn funds. but some still charge on the commitment.. I talked to one pretty big one out of FLA the other day and he was trying to snow ball me in saying ya BUT our draw system is very fast LOL..

    I have lent money in BC  before and the notes were pretty close to US documents.. so look at your note..  Or if there is no note as others have said look at your agreement if there is no clear call out for interest only on drawn funds you may be stuck paying interest on the whole Mary Ann regardless of if you draw it all or not..

    and or you if there is no prepay penalty just pay it off On Monday and add 3 days of interest and start over. 

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    2Reply
  • Rick Pozos
    Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
    5y

    Or instead of the rehab taking months and months, you might get it all done in 1 month or 2 and sold. You might save some interest if you get 10 or 15 people working on different items at the same time. On that big of a rehab, paying a couple of thousand $$ extra but having the money might work better for you.Now you dont have to be out of pocket and waiting for the next draw.

    1Reply
  • Jeff S.
    Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
    5y

    “We told them to use their lawyer to draft up the agreement (which may not have been the best thing, but we were thinking that their lawyer would look out for their best interests. …)”

    I have huge respect for this, @Ralph Noack. Good for you. And yes, you should have at least recommended the terms you wanted as a starting point. Live and learn.

    You didn’t mention if your agreement requires the loan to be fully funded and escrowed. Obviously, it’s now fully funded but if you send the money back, who will hold it? Do you risk your lender lending it out to someone else until you need it, spending it, or getting cold feet along the way?

    In CA, for example, brokered construction loans are required to be fully funded and escrowed to avoid the draw money from disappearing when you need it. Whether you pay interest on all of it or not must be negotiated.

    If this was a simple mistake on your lender’s part, per @Stephanie Medellin’s advice above, you should send it back. If not, you have to weigh the risk of not seeing the money again vs paying interest on it. Perhaps suggest escrowing the remaining construction funds at no cost to you if this is not already in your agreement???

    1Reply
  • Ralph Noack
    OP
    Rental Property Investor · Lynden, Ontario · Member since 2017 · 90 posts · 19 votes
    5y

    @Stephanie Medellin

    This is where we take the blame. The agreement didn't spell it out when it first came to us. It was lacking in several areas, & we sent it back to the lender's lawyers to improve it, but for some reason, they said "No." Should have been our huge red flag. So here we are learning along the way. Admittedly, it's our first constrution loan. It was already late in the game & we were in a desperate scenario where we needed to access those funds ASAP. I've had different scenarios in the past where little instruction was given, & somehow someone expected something other than the end result.  Hard to get upset about it. Just need to figure out how best to resolve the situation.

    We know the lenders well enough that we can talk to them on Monday. I think their lawyer is more likely the problem. Frankly, we also wish that our lawyer's office would have pushed for more details in the agreement as well. We at least have the excuse that we've never done this before, but again our lawyer is supposed to be looking after our best interests. We've just started working with our current RE lawyer within the last 6 months or so.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free