All Forum Posts by: Jeff S.

@Patrick Roberts wrote:

@Jay Hinrichs I know of one person who is buying high LTV preforeclosures Subto while they’re off market by paying the owners around $10k-$15k to walk away, quit claiming them into an entity, then seller-financing the entity holding title to the property to owner-occupants under the pretense that it's for commercial purposes on interest-only balloons at inflated values."

Amazing. Let them pull this crap in CA now. Instructing or deliberately causing a borrower to sign business-purpose loan documents when you know the money will be used for consumer purposes has always carried civil liabilities. Beginning this year, with AB 3108, it’s now a crime that can result in a felony with up to 3 years jail time.

I’d love to see one of these prosecuted.

Quote from @Jonathan Warner:

“Have you found that lightning docs has been airtight for you? I was considering having a lawyer draw up a baseline loan doc and make tweaks to it on a per loan basis. I’m assuming that you save quite a bit of money.”

We’ve been lending since 2010 and have never had a loan contested. We’ve only foreclosed on a few properties, all without issue, so I’m uncertain what qualifies as 'airtight,' Jonathan. What are your concerns?

Lending laws change frequently, and we receive emails from Lightning Docs throughout the year explaining their updates to the documents we use here in CA. Can you keep up and afford to have your lawyer update your documents?

We pay Lightning Docs a $500 annual fee and $500 per loan, which we charge to our borrowers at closing. This way, we receive continuous updates from attorneys who eat, sleep, and breathe lending at minimal cost and we know we are always up to date. Unless your deals are particularly complex or unique, why would anyone pay to maintain their loan documents anymore?

I don’t see much difference either. BP has no reason to improve the search feature, which they could fix in a heartbeat. It’s not in their interest. More posts mean more eyeballs. More eyeballs mean greater viewership, improved SEO, and increased revenue. This applies even to the 100,001st question about LLCs vs Insurance.

I recall a rule here prohibiting responses like, "This has been answered many times. Do a search." I'm unsure if that rule still exists, but it’s clear they want dialog.

And yes, @Scott Mac and @Joe S., I fully agree with your comments about appreciation. Though my response might help others, common courtesy suggests you thank those who took the time to answer you. I used to provide detailed answers to DMs, which are private and help only the requester. Since “thank you” seems to have gone out of style, I now limit responses to one or two sentences.

We won’t lend a dime to anyone unless we’ve gone to lunch, gotten to know them a bit, and looked at a few of their properties. In our view, experience and integrity are by far the most important parts of any private loan. You only get a sense of this by meeting face-to-face once or twice.

A bad borrower can kill a great project. A good, experienced borrower can turn around even an unexpectedly bad deal. I was once told jokingly that we bet on the jockey, not the horse.

Next comes the property. The borrower must have a good deal from which they will make a fair profit. We have specific and unyielding criteria for this, which we provide to all potential borrowers in advance. We don't use LTV explicitly, but using our criteria, it ends up around 55% to 65% of the ARV. We are direct lenders, meaning we lend our own money, for flips within approximately 1½ hours of our home.

We walk through every property to avoid surprises and to confirm the rehab estimate. In addition, we pull our own comps and use Lightning Docs to generate our loan documents. This allows us to close extremely quickly, which is an important competitive advantage.

I don’t know how to read our own tax returns, and I’m certainly not going to read yours. The same goes for your credit score, which tells us nothing about your ability to flip a house and pay us back.

In sum: Experience, Integrity, a Killer deal.

I had this exact conversation with a borrower just a few hours ago, and it surprised us both. We’re not used to seeing emergency declarations as frequently as they do in Florida.

Our borrower is a local rehabber with a property scheduled to be funded today and close tomorrow. However, the buyer's bank refused to fund the loan, stating they needed to conduct a full inspection—inside and out—to confirm the property still exists. He mentioned the distance to the nearest fires (about 20 miles), but the bank isn’t budging. Why they need to inspect the interior when the exterior is pristine remains a mystery, but we don’t make the rules. It’s also unclear if they plan to order another appraisal. Maybe someone here knows?

I suppose this is routine for East Coast lenders. Even though we live in earthquake country, this was a new experience for us.

The pickin’s are slim in Salem, but there seem to be several real estate clubs in Portland if you’re willing to drive an hour. Here’s a Meetup link that might be helpful to you, @Melis Torres. If you can’t attend a particular event, call the club leader and ask for recommendations to some private lenders. Do this even if you attend in person.

I know there are many honest lenders out there, and everyone has their self-interest, but building a face-to-face relationship has not gone out of style. Borrowing anonymously from an online solicitation can easily lead to yet another unfortunate BP story. For what it’s worth, we won’t lend you a dime unless we’ve had lunch together.

“I guess I missed my chance looking for a private money lender because a hard money lender was interested in my deal.”

I don’t understand this—what does one have to do with the other?

What’s even more unfortunate, @April Smalls, is that newbies are falling for it.

A few years ago, someone created a fake website that impersonated our company. It included a Google Voice phone number, and the scammer answered calls pretending to be me, using my real name. He asked a few people to send him money in Bitcoin. Bitcoin!!! Shockingly, some actually did.

I took a quick look, @Torianne Baley:

1) With short-term treasuries now paying around 4.5%, guaranteed by the USG, why would anyone loan to you at 5%? HML rates are currently around 11% plus a few points. You can stop right there. On its face, this is a scam. Stop reading if you want.

2) I couldn’t guess what “There is a 6 months of grace period before interest payment begins” means.

3) They call their $3555 charge a “Loan Fee,” stated a few lines up as 2%. 2% of $235,000 (loan amount) is $4470.

4) Do you seriously believe the loan fee, “… IS 100% REFUNDABLE IF THERE IS ANY DEFAULT FROM THEPART OF THE LENDER OR IF THE BORROWER CHOOSES TO TERMINATE THE LOAN.”

5) It’s okay to pay an appraiser directly. Beyond that, sending upfront fees to a lender is not okay. Lenders get paid at closing.

Consider developing a better process to find and vet your lenders, Torianne. No one here will, or should, do your work.

Assuming these are for short-term loans, such as for flips, @Keith Groshans, you could do what we do and let the borrower keep the money and pay everything when they sell the property. In this case, since they are borrowing their payments, these would get added to the principal balance each month, and interest would be calculated on that.

If, for example, the interest rate on the note were 10%, they would implicitly be borrowing their payments at that rate. If you do the math, since your borrower is paying interest on interest, it raises your effective interest rate by about a point. Thus, your return would be about 11%. With some more math, you’ll see that the extra amount in dollars is not that much compared to the total amount of interest paid. Borrowers like that.

Since money is the lifeblood of all house flips, I consider this a win-win for everyone. It enables us to keep our money working at our current rate, and it puts more money in the hands of the rehabber. I argue that more money in the hands of the rehabber makes the loan safer. Idle money is the quickest path to low returns and does no good for anyone. Since few lenders have the stomach to do this, it’s also been a great competitive advantage for our business.

This horrifies almost every private lender I know. They argue that a missed payment is your best notice that there is a problem brewing. As small lenders, we’re in frequent contact with our borrowers, so we usually know how they’re doing. Can you imagine actually communicating with your borrower? I suppose if we had hundreds of loans out, this would be impractical. If we had hundreds of loans out, we’d have enough monthly income to aggregate the payments into additional loans—but we don’t.

If you do this, your note will have to have a compounding clause in it, provided by your lending attorney. Your attorney should also determine if this is legal in the state(s) you’re lending in. Also, note that if you use a loan servicer, some can’t handle compound interest. It’s high math, I guess.

This preliminary injunction has been stayed. The CTA is reinstated, and we are back to being required to register.

According to Doss Law:

As of December 23, 2024, the U.S. Court of Appeals for the Fifth Circuit issued a stay of the nationwide preliminary injunction previously granted by the U.S. District Court for the Eastern District of Texas in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.). This decision effectively reinstates the Corporate Transparency Act (CTA) and its Beneficial Ownership Information (BOI) reporting requirements nationwide, pending the Department of the Treasury’s appeal resolution.

Click here for the full article which includes the new reporting deadlines.