Problems collecting on a loan

[Brian Garrett]

Long story (which I'll try to make it short), but we did what we "thought" was going to be a hard money loan for a fix/flip.  Did what we thought was diligent research on the individual and company. They had a good history and track record of doing fix/flips.  Contracts were made through a mortgage broker so everything appeared to be above board.  Ultimately the flip went bad and we've been unable to reclaim the funds we contributed.  In doing some cursory investigation it appears the broker handling the lending contract we never got a lien on the property - which basically leaves us as having made an unsecured loan.  Up until recently the individual was communicating and promising to make payments.  Of course they are no longer returning calls or emails.  Fortunately we aren't behind the 8-ball financially but I'd sure like to see about recovering the money without throwing good money after bad.

If anyone has some suggestions on a path I can take forward it is welcome.  We're well beyond the "you messed up" conversation.  That part we know - I'm just looking for some options/solutions.

Thanks for any help others may have in this area.

Brian

[Jeff S.]

It’s not just a personal guarantee that would help, @Brian Garrett. Were there lender instructions included in the loan documents? These would typically specify the position of your loan and how it was to be recorded. For example, ours say, “The deed of trust must record in 1st lien position on or prior to the disbursement date noted above.” This really says four things:

1) There must be a deed of trust (or mortgage in your case).

2) It must be recorded.

3) It must be recorded in the position you agreed to (1st position in this case).

4) This must happen before the date shown.

Lender instructions will be signed by the borrower and escrow, or I suspect the closing attorney in IL, placing them on the hook as well as your broker. For this reason, I would recommend a lending attorney. This is not the same as a real estate attorney, who might do evictions today, closings tomorrow, and easements the day after.

A lending attorney will know what documents should have been included to protect you and what to look for in those that were. A larger firm will have all sorts of specialists including someone who specializes in debt collection. I can recommend a large lending law firm that works nationwide but local is better. With you in CO, the property in IL, and you didn’t mention the location of the borrower, I wouldn’t even guess on jurisdiction but start in the state the property is located. Loan docs are generally state specific.

Call some of the larger HMLs in IL area and ask which lending law firm they use. I bet you’ll hear the same few names over and over. An initial consultation shouldn’t cost you anything.

Not trying to beat you up but I’m interested in lessons learned. How did you get into this? Did the flipper recommend the broker? My head swirls with thoughts of fraud and conspiracy. If they are active, rest assured you are not alone. You might contact some of their other lenders to see how they are handling the issues. For all you know, there is another law firm already helping with the same problem.

Also, since this borrower is/was active on BP and you’re using your full name, be careful what you share here. He or she and their attorney will absolutely read this.

Indeed.  This sucks.