Creative Financing Help. Hard Money and Points

[Tom Anderson]

Hi BP! 
I'm looking to find a private lender that is open to doing some creative financing for a commercial property that I would need to do a quick close on.

There's a commercial property that is going into a foreclosure auction in two weeks that I would love to try to win. I currently have a portfolio of 3 cash flowing property with roughly $900k in equity, but I won't have enough time to build out a line of credit on these properties in order to leverage this equity for this purchase. 

Are there Private Lenders or Hard Money lenders out there that are willing to do creative financing on properties purchased in an auction? I have the $50k deposit to sign up for the auction but would need the financing to actually close on the property a few weeks after the auction. The overall goal then would be to get a conventional commercial loan in the next 3 to 6 months after closing. 

I'm hoping to use my equity as collateral with said creative financing partner and offer up percentage points in the overall deal on top of the traditional interest on the loan. 

Does anyone have any advice on who I should be talking to in order to find someone that could move quickly here to make this work?  Thanks in advance. 

Tom

[Don Konipol]

@Tom Anderson

Yes. There are; but it’s not easy to accomplish while complying with securities laws and regulations.

Ten years ago, if you solicited or advertised for a private loan it was not considered a securities offering. Bottom line is that now it is. So, being a securities offering the offering must either be registered with the SEC, or be exempt from registration.

One exemption from registration is for a intra state offering; both the property and the investor are located in the same state. However, this usually leaves you at the same place because you will then need to comply with that states securities laws, which more often than not are modeled on Federal Securities regulations.

The most popular type of expert offering is the “private placement”. You can rely on the general exemption for private placement; nothing is required to be filed, no particular documentation for the offering is required. However, you must have an existing relationship with the investor, and the investor must be sufficiently sophisticated to evaluate the offering, or have a financial advisor who is.

Further, no general solicitation or advertising is allowed.

One problem with utilizing the general exemption for private placement is that you are very likely to be sued should something go differently than projected, you will have insufficient documentation to defend your case in the lawsuit, and you have no statutory defense.

You can utilize a Reg D 504, 505, or 506 b, c, or d “safe harbor” exemption from securities registration. You will be required to have a PPM prepared, file a Form D with the SEC, and depending on the particular rule you utilize may be limited to accredited investors. However, under Reg D 506 c you can use general solicitation and advertising. Further, a Reg D offering that goes south is much less attractive for an attorney to sue on, and if you comply with all Reg D requirements you have a statutory defense, absent fraud, with a summary judgement in your favor possible. Of course the deal could go as planned and all this becomes mute.

I’m sure deals are concluded every day in which compliance with Federal statutes is either unclear, or in non compliance, and many if not most turn out fine for all parties involved. Doing it in the “grey”area is certain.y less costly and time consuming up front, and may work out fine. A lot depends on your financial position and how much you have to lose in a potential lawsuit, the risk inherent in the deal, and how you sleep at night. Look, it’s almost a certainty that even if your not in compliance you’ll never be contacted by the SEC for that violation, if it’s a one time thing and not a business operating method. The big issue is the problems you have with non compliance in a private lawsuit, should the private lender be on the losing end.