Fund That Flip (FTF) - 87% LOSS - be careful

[Glen Friedman]

Folks,

Just wanted to give everybody a heads up on what can happen with online crowdfunding real estate sites.

I have invested with Fund That Flip (FTF) for the past 2 years.  I invested in 11 of their projects, each with the same dollar amount as a way to diversify my real estate holdings.  8 of the projects paid off completely with an average annual return around 8.5-9%.  Not bad considering it's completely passive.

Then disaster strikes.  I get an email informing me that one of the investments went bad, the company had to foreclose on the property and that I can expect an 87% loss of my total capital on that investment.  Effectively, this wipes out every penny I made from ALL of the investments on their platforms over the past 2 years.

Of course there is risk.  It's real estate.  But please don't tell me that you have systems in place to help mitigate this risk.  Why would anybody invest in this type of platform knowing full well that 1 investment can wipe out all of the rest?  

Hope this helps,

Glen

Below are the emails and details of the project for other to see and get a better understanding of the potential downsides.

https://www.fundthatflip.com/d...

Update on Deal 17043: 6511 South Peoria Street, Chicago, IL

Background on the borrower We began our relationship with the borrower in early 2018. We had many meetings with the borrower regarding their history in real estate development and their intended execution plan. The borrower was operating a sizable operation, inclusive of approximately 100 multi-family units. They had a track record of completing work, multiple crews, standard materials, and refinancing successfully. Based on the provided plan, credit, background, experience, valuations, and meetings with team members, Fund That Flip made the determination to fund this and several other projects for the borrower. Timeline The projects appeared to be progressing well throughout 2018. At the beginning of 2019 we began to see late payments across the portfolio. We also began to receive notices from the city pertaining to code violations. The violations pre-dated the borrower’s ownership period and our expectation was the renovations would resolve them. At this time, construction continued to progress as evidenced by the third-party inspection reports. We decided to halt all new loans with the borrower until current projects were completed and be repaid. In April, we sent counsel to the first hearing pertaining to code violations and began to learn of information that was contrary to the third-party inspection reports. At this point, monthly interest payments had also ceased while it had been reported to us that construction had been completed. Risk Mitigation Our Asset Management Team began to analyze and put into motion a risk mitigation strategy that sought to maximize the preservation of principal. The options considered included: Forbearance & Refinance – We considered providing the borrower with a forbearance to delay interest payments for six months while keeping the loan in good standing. The goal here was to allow the borrower to build-up cash reserves to get his operations stabilized and the assets in a position to be refinanced. Ultimately, we had concerns about the borrower’s ability to execute in a timely manner and we did not want to delay the outcome an additional six months. Sell Note – We solicited offers for the notes via several channels. We were unable to secure offers within a reasonable price point. Foreclosure – While foreclosure is always an option, there are several significant drawbacks to this strategy: Cost. Attorney fees were estimated to be in excess of $12,000 per property. If the borrower were to challenge the foreclosure and draw out the process, these fees would continue to accrue. Timeline. Given the location of the properties, the process was likely to take in excess of twelve months. During this time, property taxes, water/sewer, city violations, etc. also continue to accrue. Liens. The aforementioned fines, taxes and other liens would not be satisfied through a foreclosure and would have become our responsibility after foreclosure. Deed in Lieu – The other way to get possession of the properties is to work with the borrower to have them deed the properties back to us. Considering this is the outcome of a foreclosure, achieving this strategy would compress the timeline and save on legal expenses. The downside of this strategy is that the borrower has some leverage to negotiate terms that benefit them in exchange for the Deed in Lieu. Plan executed Given that we had ruled out the first two options, it became clear that we were going to end up taking these properties back along with inheriting any accrued liability. As such, we opted for the deed in lieu strategy in order to minimize cost and uncertainty while speeding up the timeline. We began working with the borrower to negotiate terms of the deed in lieu. The main point we were required to give up was the borrower’s personal guarantee (PG). While not ideal, when weighing the additional costs and time of foreclosure, against the likelihood of recovery from the PG, we determined it was more likely we’d save expenses than we’d be able to collect on the PG. In other words, the expense saving was rather certain but our chances of recovery on the PG seemed slim. We completed the deed in lieu over the summer and began marketing the properties immediately. We received multiple offers and while we are unsatisfied with the loss of principal, we believe we received the best offer available. Explanation of the Outcome The percentage of loss on this project is atypical as are the circumstances that caused it. As a way of background, we rely on professional third-party inspection firms to visit each property and report on the status of the renovation. These firms specialize in this type of work, and as such, we rely on the information we receive from them to make determinations on how much capital we advance for improvements made to the property. In this case, we believe the third-party inspection company did not perform their duties. Leading up to the deed in lieu, we performed our own site visits and the conditions we observed do not align with the information in the inspection reports. The result of this is that we advanced more funds for renovations than we would have otherwise. This created a situation where our loan amount was in excess of the value of the properties. In other words, work and the quality of that work that we believed to have been completed was in fact not completed. We are committed to maximizing the recovery of principal and as such, have retained counsel at our own expense to hold the inspection company accountable. This process has just begun, and it is unclear how long it may take to get to a resolution. We will continue to keep you apprised as developments occur. Below is a complete breakout of the recovered amounts, expenses, and net result:

Fund That Flip will provide updates as available regarding our legal action against the inspection company. While the outcome is uncertain, to the extent our effort is successful, it is our intent to distribute any recovered proceeds to all affected.

Once again, we believe this is an atypical result caused by the failure of a professional services firm. We have since terminated the relationship with this firm and have reinforced our standard operating procedures to lessen the likelihood of a similar occurrence.

We thank you for your patience and hope you know we are committed to doing all in our power to deliver a better final outcome. Please let us know if you’d like to discuss this matter further.

[Vania Castillo]

Hello alll,

I met Matt personally few years ago.  He seemed very personable  and available to talk to me as "possible investor". 

I made 2 investment with FTF.  The fist one for $ 5,000 to "test the waters".  My principal and interest were returned 3 months later as per agreement.  After that experience, I invested $ 20,000.  Note matured a year ago in September 2020 and still has not been paid back.  Over the past year they were paying interest, sometimes late, but paid.  However the interests stopped in August.  I called this week and communication has not been very good.  When finally the Customer Relationships person answered, he could not give me information about the status of the investment!  I gave him until the end of the week (as per this writing: Tomorrow) to give me an update.  I'll keep people updated about the outcome of this investment.

Regardless of the outcome: I won't invest with FTF again and can't recommend it!