Ethical questions about family lending/recording seconds and LTV

[Jesse P.]

My brother and I bought and rehabbed a 5plex last year. We gutted 5 cabins built in the early 1900s, installed a new septic system and took out over 30 massive redwood trees. The project lasted about a year. We live in a county where remodel permits are nearly impossible to obtain and septic permits are even harder, if that could even be possible. Our property bordered a school and every day all the school traffic drove right by our project. We didn't get permits for any of the work including the septic system. We decided to just go for it. even though we were working in a fishbowl just begging for to be turned in. At any time a neighbor or any one of the hundreds of people driving by could have reported us to the county and we would have been in a very bad spot. Had we gotten caught we would have had to stop work, pay huge fines, install an 80k-100k septic system, and jump through all sorts of hoops. The project would have tied up all of our funds for 2, maybe 3 years. We very easily could have lost everything. On a scale of 1-10 the risk factor was at least an 9. It was about as risky as it could get. In the end we pulled it off, which was nothing short of a miracle. It appraised for 1.3m, we were able to pull all of our money out of it and after all expenses it cash flows 3k, it was a homerun for sure

But here's where it gets sketchy. My funds came from a hard money loan leveraged against a rental I've owned for years and my brothers came from both an LOC he took out against his primary residence and 60k from a signature loan he talked our mother into bankrolling. After we closed I discovered something about my brothers funds that was disturbing. When he used his primary residence for collateral he borrowed at an 80% LTV which came out to approximately 180k. After borrowing the additional 60k from our mother he had 240k to invest. When he originally bought his primary residence he borrowed 200k from our mother and 50k from his wife mother for the down payment. Unbeknownst to any of us he never recorded either one of them onto the title. When the bank loaned him 180k on the LOC they didn't know about the 250k he owed our mother and his mother in law. The LOC then went into second position and on paper the Total liabilities against the property sat at an 80% LTV. In reality he owed as much or a little bit more than his property appraised for (1,050,000 appraisal, first loan 630k, LOC of 180k, loans from family totaling 250k, additional 60k from mom) that all adds up to 1,140,000. When I called him out on it he brushed me off. He denied that he had done anything unscrupulous and even after I walked him through the math he refused to admit that he was over leveraged. I can't remember the term he used to describe his position but it wasn't overleverged and he told me that I didn't understand LTV. What was even more confusing about what he said was that he told me he didn't fill me in on what he was doing ahead of time because he knew I wouldn't have let him do it. It seems contradictory to me.

My brother is a big poster on this site. He's listened to pretty much every podcast they've put out. He throws around a lot of investment terms and different acronyms that I don't always understand or follow. Although I'm a licensed Realtor I don't work with many investors and sometimes I get lost when he digresses into investment speak. My question for the forum is what he did on the up and up? Was what he did ethical? was it legal? I don't want to get the rest of my family involved if I'm somehow missing something. Can anyone weigh in on this?