All Forum Posts by: Jeff S.

You are not the junior lienholder, @Chris Potter, because there is no junior lien anymore. You're the property owner now, subject to the first-position lien.

I hope you know, you could have bought an enormous amount of penalties, default interest, legal fees, and accounting fees from the first lien holder—not to mention a pending foreclosure. These might already exist, depending upon all the arrears the prior owner accumulated.

Was your purchase handled by a title company? Have you run title recently to check for other liens, NOIs, NODs, etc.? Is there a recorded deed in your name now? This might not have your mailing address on it, like a mortgage or DOT would, so it's possible HUD knows your name but has no way to contact you.

Rest assured that HUD absolutely understands Utah law. You're just not speaking to the right person. NODs and NOIs will have contact info you can use. Your title company should be able to help you with this.

(Separately, as the owner and not the lienholder, make sure you now have property insurance and have secured the home.)

Legal obligation? No. But I agree that it’s an unwritten rule: you shouldn’t go around a broker, @James Jackson. As a five-time repeat customer, however, I guarantee that neither the lender nor the broker wants to lose you to their competition — which I’m sure they recognize is numerous.

I would have a strong discussion with this broker and negotiate costs and fees. (Broker liaison fee? C’mon.) I don’t know whether brokers are fiduciaries in AL as they are here in CA, but he might not be adding value for you anymore. In addition to addressing his costs, this broker should be negotiating with the lender on your behalf as well. You have every right to expect all of your suppliers to continually earn your business. This broker is no exception.

In parallel, you might find some lenders on your own. This isn’t hard, James. In fact, we don’t work with brokers at all and find our borrowers directly at local real estate clubs. Both Meetup and Eventbrite are good sources.

Here’s a meetup link to real estate clubs near Birmingham. As a proven entity, all the lenders in the room will want to get to know you. Go to lunch with a few and form some relationships. You’d be smart to build a network of lenders and keep a stable in your back pocket that you can pick and choose from as your deals, and their criteria, align.

Don’t feel stuck, James — you’re bringing them the business, not the other way around.

I’m sorry, but this is extremely irresponsible and uninformed advice. If the use of the money is for personal, family, or household use, @Kwanza P., then the loan is for a consumer purpose and must be originated accordingly.

Even though you ultimately intend to sell, the fact that you will be using the loan proceeds for your residence means your loan will be for a consumer purpose. It must therefore comply with TILA, RESPA, the SAFE Act, Dodd-Frank, and all associated rules and disclosures (for which business purpose loans are generally exempt).

You cannot “stay under the radar of owner-occupied classification” by “moving in after the rehab begins or keeping it under 12 months.” If this home is in California, as you are, Kwanza, it must be originated by a licensed California real estate broker or CFL. It has always been prohibited, but beginning this year in California, brokers or CFLs who attempt to "stay under the radar," as Kyle recommends, now face jail time for making such loans.

“Structuring as a short-term bridge loan” or using “private capital or asset-based lenders that focus more on the deal than the borrower’s living situation” change none of this.

You can find a list of knowledgeable, licensed private lenders who make consumer-purpose loans by searching the member directory at the California Mortgage Association. (Full disclosure: We are members, but we do not make such loans.)

Too late. As I was writing my response to you, Chris, I received this email from the CMA a few minutes ago. It addresses your question:

"Despite the hard work of our lobbyist, Mike Belote, General Counsel, Robert Finlay, Elizabeth Knight’s entire Legislative Committee, the extensive outreach program for industry assistance, and the support of many legislators, the California Legislature just passed AB 130. When the Governor inevitably signs the bill it will become effective immediately, as early as Tuesday, July 1st. Section 2 of AB 130 will significantly change the origination, servicing, and enforcement of subordinate liens in California. Specifically:

• AB 130 will render subordinate liens essentially unenforceable if any of the following has occurred during the life of the loan on ALL residential properties (including 1-4, 5+ (apartments) and mixed used) whether or not the loan was originated as a consumer loan or as a business purpose loan (this also includes lines of credit):
• Failure to communicate with the borrower for a period of 3 years;
• Failure to send any required monthly mortgage statement;
• Failure to send an ownership or servicing transfer notice; or
• Sent the borrower a “form” indicating that loan had been written off (including a 1099).
• Before foreclosing on any subordinate lien, the loan servicer must certify, under penalty of perjury, that none of the above events have occurred ever, by any servicer of the loan. It would be doubtful that a loan servicer would risk going to jail to certify acts that happened on another servicer’s watch, even if they believe everything was done properly."

This statute applies to all subordinate mortgages. (See your section “b)” above). No sane servicer would sign the required certificate. I’m curious what happens if we service our own loans. Does this apply to the foreclosure trustee?

I have to agree with @Patrick Roberts. I can’t believe there won’t be a TRO against this almost immediately. Seems crazy.

Hope everyone collects a PG.

California SB 681 was intended to deal with problems surrounding zombie mortgages. It was poorly written and, if passed, would make all junior liens unenforceable in the state.

While a number of industry groups were working with the sponsor to rewrite the bill, the author instead pulled a fast one and buried three pages from it into AB 130, a 215-page budget trailer bill which has nothing to do with real estate.

These three pages, which must be removed, are an attack on lending in CA and will effectively make all junior liens unenforceable. This bill will cause damages for all borrowers in California including those who cannot refinance their low 1st mortgage and need to get a 2nd mortgage from the equity in their homes, HELOC, and many other borrowers in general. Likewise, this bill will send shockwaves of harm through the entire mortgage industry in California. We all have a dog in this fight and must deliver immediate opposition to all our corresponding representatives.

The California Mortgage Association (CMA) outlined key points to include in a message to your representatives:

1. If the provisions of AB 130 involving subordinate liens are passed, it will make enforcing a junior lien completely impossible.
   
   
2. If subordinate liens cannot be foreclosed upon in California, lenders will stop making junior liens and extending second-position lines of credit. In today’s housing market, with many people locked into 3% loans, this will make tapping into one’s home equity virtually impossible.
   
   
3. Private trust deed investors, many on a fixed income, will find the 2nd liens that they invested in, unenforceable virtually overnight.
   
   
4. Bill allows for retroactive setting aside of foreclosures sales from years ago, which is destabilizing to the real estate market.

You can watch Mr. Mike Belote, a lobbyist for the CMA and the United Trustees Association on June 25, 2025 zealously advocating for us here.

Conventional and private lenders alike have much to lose here, as well as our borrowers. Please take a few minutes to write your representative to add some sanity to AB 130.

While I appreciate your confidence and the sales pitch, @Robin Cochran, you are asking for a rescue loan on a risky project. Sorry, but this will not be “… easy money for the lender."

Your project is incomplete, and you have run out of money. You don’t indicate how this happened or how you know it won’t happen again, but this is something any sensible lender will want to know. I recommend you develop a plan explaining your circumstances, how you got here, and include a plan forward with a detailed scope of work.

Your project might be worth $430k to $450k when complete, but not right now and there’s no way to estimate its value from what you wrote. Few lenders (and contractors) will want to take over an incomplete project if they had to. Don’t be surprised if they value it accordingly.

I’ve no doubt you will receive DMs from many brokers who will have no skin in the game. You could get lucky here. If you’re asking for a private lender to invest their own money, however, I recommend a position of humility with a detailed plan, rather than an offer of “easy money.”

I suggest a different method, @Christina Swaby.  Instead of a rule-of-thumb, payback period, or arbitrary “Do it when your rate drops X%,” consider a more analytical approach using your Return on Equity.

ROE = Annual Net Income after expenses (including mortgage) ÷ Equity

In many areas, where equity grows faster than you can increase rents or minimize expenses, your ROE will drop over time. Normally, as properties appreciate and mortgages are paid down, equity naturally builds, and at some point, your ROE will be lower than the return you could achieve in another investment. Prudent financial planning suggests setting a threshold ROE as a goal.

When your ROE drops below your threshold, it signals the time to extract “trapped” equity and place it into another investment with a higher return. Of course, this assumes another investment is available, along with a few other considerations.

For example, if your ROE is low but reasonable, it would make no sense to refinance and put the funds in a savings account at 1%, even if interest rates have dropped by the rates noted above. On the other hand, lightning does strike occasionally, and a great deal with a high return could fall in your lap. Here, it could make sense to refinance even at a relatively high rate to take advantage of the opportunity. Real life will fall in between these examples, but you get the idea. Another consideration is to avoid overleveraging yourself and risking your positive cash flow.

I think a benchmark Return on Equity is a better way to make your decision, Christina, than simply looking at interest rates or breakeven periods.  ROE is much more encompassing and an important measure of efficiency that you can use to decide when to refinance.  You can also use it to help decide when to sell—but that’s another topic.

I’m not sure if you’re changing your topic, @James McGovern, or if these are the same individuals complaining because hard money lenders are making more profit than they are. Either way, I’m unsympathetic.

Complaints that lenders make money on their money (the historical definition of usury) have been around for millennia and are nothing new. Your meetup discussion was as old as Plato and Aristotle.

Overpaying because you are trying to keep your crews busy is a strategy used by some active rehabbers and a conversation we have frequently. Unfortunately, this strategy puts the lender in a bad spot. You might be happy earning a below-market profit in return for keeping your crew busy, but we could end up with that property!!! In fact, the chances of foreclosure are greater as the profit potential drops. Then what? How would we get rid of a property with a loan balance that few others would pay?

Successful rehabbers, to us, are those who can control their costs, the rehab timeframe, and are able to buy well enough to make a fair profit--the true goal. This protects everyone in the deal. Lenders should not be participating in “low profit” deals so that the rehabber can maintain their crew.

I wonder if these same individuals complain when they earn a multiple of what their lenders earn—which they should. More than likely, they just don’t have that experience.

A lender's return is typically fixed by the length of time their money is out. The rehabber's return is unlimited—but with much more risk. I've never heard an HML complain that their borrowers are earning substantially more than they are.

“It is easy to respond that they are not purchasing the property at an extreme enough discount but think there is more at play than that.”

Of course, there is more to that at play. Not only must the rehabber buy at a substantial discount, but they must also control all their costs and the duration of the project.

We run the numbers in detail before we make a loan and we won't make the loan unless these indicate a fair profit, which we define as 12% to 15% of the ARV. We can show that for a typical 6-month flip, we will earn about ¼ to 1/3 of the rehabber's profit. In other words, the rehabber will earn 3 to 4 times what we do. Of course, this changes when the real number come in at the end.

True, but my favorite novice quote is, “I don’t care if I make money, because I’m doing this to learn.”