All Forum Posts by: Joffrey Long

Jay, you're right. My response to Braden was simply based on the sale of properties for cash. Taking the price and "spreading it out in payments over time," will likely be determined to be a transaction with a finance charge. This is based on the theory that part of the purchase price that is "spread out over payments" is a payment for the use of the money, or, in plain English, a finance charge. Great catch. Braden, as to whom to call, I am not sure. You may want to start with local trade associations, particularly those that deal with mortgages. The local real estate sales groups, local title companies, etc. may all be sources of a potential attorney in this area. Joffrey Long

Braden, Everything I said relates to extending finance and charging some kind of finance charge. If all cash, disregard everything I said, except, check with applicable state law as to any laws you have to comply with relating to the sale of any properties. You're smart to consider the possible licensing aspect of selling a certain number of properties, it could vary based on the state you are located in. Also, if you're "gearing up" to re-sell a number of properties, I'd invest a little in getting qualified advice, rather than learn it, "experience by experience." Joffrey Long

Ben,

I missed one point:

All of my comments are based on Federal Law, which you are of course subject to.  Jacob made a good comment, "the state matters."    He is correct, there may be, in addition to what I said, state requirements you need to meet.  

Just want to also clarify that regardless of the State, you still are subject to what I listed earlier.

Again, an investment in qualified legal counsel is your next step.

Joffrey

Ben,

I believe that there are two questions you have to answer, and then I'm going to respectfully disagree with one of the other suggestions you were given:

First, (and I believe Jim identified this issue) is your transaction a true lease option or is it a deferral of part of the purchase price, including payment of a finance charge? (a loan)  What you described sounds like the latter.   (making it subject to TILA and NMLS reqs)

Second, are you a "creditor" under TILA ?(Truth in Lending Act)  I would think you are, the correct answer to the first point leads to the creditor definition.

A "creditor" under TILA is an entity or person who extends consumer credit with a finance charge more than once in a 12 month period, which you likely do.

 I will disagree that "licensing is easy to get," as the NMLS test is hard to pass AND even if you do, your entity must now begin quarterly and annual reporting to the NMLS System.

Also, under Dodd Frank, if the above apply, you are probably required to document the borrower's ability to repay, and service the credit agreements/loans under the strict Dodd Frank loan servicing rules.

 In Dodd Frank, they anticipated that some might carry paper to get around Dodd Frank (not that you are doing this) and therefore they also "cast their net" over seller carry backs.

Most importantly, please don't rely on what I say, except to inspire you to seek legal advice (which I am not qualified to give) from a qualified attorney in this area, and structure this so it doesn't get you into legal tangles or possibly worse, interaction with the CFPB. (no fun)

I do testify in court as a mortgage lending expert witness, so I am at least qualified to say that when borrowers can't make payments, they often sue or otherwise challenge the legality of your loan origination.

Hope this is helpful.   (although not fun reading)  I do like your business model.

Joffrey Long

www.MortgageExpertWitness.net

Shiloh,

On A/C, you might have to look past the "net addition to appraised value" textbook stuff and focus on all the buyers who won't be able to get past the no a/c story, or worse, will factor in larger costs for a/c and the fact they can't finance it up front into their loan.  Get the A/C.

On the wrap around, there are all kinds of technical issues, but here's a quick shortcut:    You don't need to do it.  With plenty of dirt-cheap interest rates and loans available, don't even open yourself up to the distraction and endless conversations about it.

You've got a great house in a super area.  You are able to get a/c in, let buyer get their own loan, and focus on getting top dollar.     

One day, if you're stuck with unsold houses in central California in a downturn, tune back into Bigger Pockets and gear up for creative strategies!

Joffrey Long

Trust Deed Investor, Hard Money Lender

Cameron,

Were you asking me?  If so, I close from 1 to 5 loans a month.  

Andrew and Jennifer,

Great posts, in my opinion.  I'll second what Jennifer said, you can run into a lot of regulatory and legal problems with hard money lending, so I would start by trying to find out first, is there a trade association in your area for hard money lenders?  Next, if there isn't, I'd go to the institutional lending trade assn. and from there, find out who knows hard money.  Also, sometimes title and escrow companies will know.  Spend some money educating yourself first.  You could also go through brokers, again, you have to find who knows what they are doing.  (If you were here in California, I could help you, but I don't know the first thing about your area - and laws and regs vary on a state and local level.)

Jennifer, I will disagree with you that it's not a wealth-building strategy.  Although you won't get the huge appreciation upswings, a lot of that is offset by the continual building / compounding of assets/interest.  Also, owning actual real estate is partly running a business / partly investing, while trust deed investment can be tailored down to primarily investing.

I can tell you that for the past 45 years I've done both, and they're both great for wealth-building.  There's an advantage to doing both.  You, Jennifer, pointed one out - putting your money to work between (ownership) deals.  Other advantages have to do with hedging your risks against both deflation and inflation, owning property and lending give you a great hedge against each negative, your loss on one side is your gain on the other.

I'm on the Board of Directors and Education Committee for our California Mortgage Association, the hard money trade association.  This certainly doesn't mean I know everything, it just makes me very aware of how much more I need to learn!

I hope this was useful.

Joffrey Long

www.HardMoneyExpertWitness.com

As a Los Angeles hard money lender, I'm watching the increasing interest rates.  I'm wondering what impact, if any, others are seeing in the net yields that trust deed investors are requiring.  I'm interested in what reactions are being received with respect to yield, concerns about the market values, and length of loan term.   

I'm only lending or working with hard money loans and investors in Southern California, so am really interested in comments from those involved (presently active, at some level) in hard money lending in California.  If you've already retired from lending activity, congratulations!  But for this thread, we need input from others that ARE still investing, borrowing or brokering hard money loans IN CALIFORNIA.  

The legal stuff:  NO Restraint of Trade:  I'm only conducting research here and no statement or information provided or received is in any way to be construed as any effort to convince others or in any way agree with others as to what any loan rate, term, fee, or condition will be.  As is obvious, interest rates and loan fees and terms are negotiated between borrowers and lenders, and to the extent of brokerage fees or brokerage requirements, among borrowers, lenders and loan brokers.

Joffrey Long

Hard Money Lender

Trust Deed Investor

Granada Hills, CA

This is a very interesting discussion.  I've been a landlord for 40 years, have 15 properties, and am doing quite well with it.  

I'm in favor of providing a cleaning from time to time, and have done so, for a filthy tenant.  If the tenant is otherwise ok, it might be a way to gain some goodwill, and certainly maintain the property a little better.

Yes, you are 100% right, it's his mess, you're not his Mom, and all the other obvious answers that were provided.  But for one tenant whose bathroom I'm about to have cleaned, he's a good guy, pays on time, and I'd rather pay a couple bucks (ok, more than a couple) to have his bathroom cleaned, which he'll appreciate, and it will give him one more reason to be able to rationalize staying in my rental when the next rent increase comes.

As far as asking the wife to perform this task, this is something I'm not qualified to give any advice on, so you're on your own with that one.

I guess if we knew how many properties each person owned, how much equity they had, and how much net cash flow they had from their properties, we could rank the answers by that criteria.

Joffrey Long

Grumpy Old Landlord

Barry,

Great question.  

The answer is "neither."

Holders of fractionalized interests in the same deed of trust share lien priority rights as to other junior or senior lien holders, but not as to each other.

As "co-tenants" or holders of interests in fractionalized trust deeds, they don't necessarily have any priority (to the extent of lien priority rights) over each other.  When they foreclose, or if their secured interest is foreclosed out by a senior lien holder, they "win or lose" together, members of the same "team."

It is true that the "majority interest rule" may affect decision making when dealing with interests in fractionalized trust deeds.  But where it can affect decision making rights among holders, it doesn't give any holder any priority over the other holders.  

Holders of interests in multi-lender loans own the trust deed, and in the event of foreclosure, the collateral, in accordance with their percentage of ownership.

Your question is very good, and draws attention to an area our industry probably needs to explain better to the investing public.  I'll likely add your question and the answer to my web page, www.FractionalizedTrustDeeds.com which you may want to look at, as well.

I hope this answer was helpful.

Joffrey Long

Fractionalized Trust Deed Lender/Investor/Broker