All Forum Posts by: Joffrey Long

Jeff,

Yes, I am still learning all this, so I am not sure, but it sounds like you've checked things out very well.

World becoming more complicated - YES!

That's why, our California Mortgage Association seminar Thursday and Friday in Universal City, which usually attracts about 150 to 160, is almost sold out today at 258 !

I think the main draw is that we have a panel of attorneys and people who worked with the DRE on the legislation and regs as presenters.

There are many who will just rely on their attorney's interpretation of this, and if their attorney is right, they're in great shape! The challenge for many, and this is the critical part, is our new obligation to "consider the investor's circumstances and background in determining if the investment is suitable." Yeah, got it. Right.

Thanks, as always, for sharing your knowledge.

Joffrey

P.S. The seminar can be found at www.cmabrokers.org

David,

Great thought, but here I respectfully, but definitely disagree.

First, a broker can never "guarantee" or in any way lead an investor to believe that they have a practice of, or agree to buy a loan back, which is just another way of saying "guarantee."

(Unless they have a permit/approval from regulatory authorities which is near impossible to get)

We are so regulated on this, we can't even say, in our ads that trust deed investments are "safe" or "secure" or other words that may lead investors to believe that normal investment risk doesn't exist.

That said, a broker could comply with all the new laws, and then if a loan went bad, could AT THAT TIME offer to buy it back from an investor. I've done that a few times, but I always have to tell them that it's a one-time offer and that it does not mean I'll ever be willing or able to buy it in the future. That would of course put me back in the guarantee business.

Thanks for the question - hope this all makes sense. I think it's a good thing that brokers are not allowed to "guarantee."

Joffrey

K. Marie,

Regarding your question about the 10% requirement: Although we're not sure how that applies to we that are licensees, I don't believe it applies to you as just a non-licensed borrower in a purely non-advisory non client-professional relationship with the borrower -no more than the private lender has to look out for you, and whether the loan is appropriate to your financial circumstance.

With respect to the 10%, if that requirement exists, it's big for licensees if they're covered by it and if David's understanding of it correct. ( I don't know. )

Joffrey

K. Marie,

I'm not sure I should be the only one stuck attending seminars, but I won't debate you on that.

I do agree that you're wise to make a considered choice about getting or not getting a license. I'm sure a lot of people have suggested you get one without understanding or thinking through what that means.

A lot of people (many with licenses) don't realize that the license, above everything else can change your role in dealings with others from being required to comply with contracts and laws to actually looking out for the interests of the other parties, and (scary) actually putting their interests ahead of your own.

That said, a licensee can engage in certain transactions as a principal and have the other parties agree that they are not acting as an agent of the other parties, etc., etc., but there can be confusion and problems with that. Anyone wanting to do battle with you, knowing you're a licensee will first make all the claims against your duties as a licensee, and then let you fight it out and prove that the particular transaction you engaged in was not within, or was agreed not to be within the scope of your license.

So I applaud your choice, based on what you stated your goals are.

Joffrey

David,

Yes, there's a lot to learn and figure out here. I don't know too much about pools/funds. But I agree that it seems to me they're more regulated in the investor area anyway.

Joffrey Long

David,

Thanks for raising another interesting point.

I don't necessarily agree with the 10% limitation, although I'm not sure what is correct.

I'm planning to ask a lot of questions, and get a lot of new information at the seminar I'm attending on this next week. Your question is one I'll definitely ask. The annual conference I'm going to usually has 160 or so signed up. This time it's over 240, largely due to the investor disclosure issue, I believe.

There is a major challenge here in learning how far we need to go, as licensees, in considering other aspects of the investor's finances and how much we're supposed to take their whole situation (as in the question you raised) into account in advising whether they should or should not invest in one particular trust deed, or fractional interest in a California trust deed investment.

Did you attend the "Doss" webinar, or another one? (If you don't mind sharing)

Thanks again, David,

Joffrey Long

K. Marie,

You always keep me thinking, which I appreciate!

Great question(s) again. I'm going to your 2nd paragraph, question 1:

Which loans are covered by the bill and which ones are not?

Actually, my understanding is that what is covered by the bill does not really fall to the loan, but to the investment. So if the investment, or investor becoming somehow obligated to invest, occurs on or after 1/1/13, then it would be covered, regardless of the specifics of the loan.

Question # 2: If a private lender loans you 100,000, .....what must you do with respect to this?

This is somewhat of a loaded question. According to the Calif. Dept. of Real Estate, you are not a real estate licensee, unless I looked it up incorrectly. This is good, as my understanding is that you would be more just a borrower and would not have all the obligations as a licensee or professional investment provider to look out for the other party.

That said, your borrowing, as an experienced investor from possibly inexperienced or less experienced individuals may be "loaded" with other potential problems. I'd watch out for liability in dealing with all investors, particularly ones who are elderly, unsophisticated, (or may appear to be) otherwise under undue influence from someone or something else, etc. It may be worth it to get some consultation as to some minimal things you can do to protect yourself in these situations.

If you just borrow from investor A once, that may have certain limitations as to liability. (not sure, though) Borrowing multiple times from the same investor OR borrowing from someone you have other business dealings / relationships with may cloud the issue and set you up for more problems.

Obviously, your investors who make money will rarely, if ever, complain. But in real estate, some deals do go South, so always cover yourself.

Overall, I can't see where SB 978 specifically involves your activity as long as you're not a real estate licensee or some other type of professional licensee that requires you to look out for the "clients," as these people appear just to be arms length lenders.

Hope that helps. With respect to your first paragraph, yes, it's unfortunate that some people in our business may have just "written up investments" for people and not really informed them of what they were getting in to. On the other hand, it also requires the investor to listen to, read, and retain information that they're being provided.

Thanks again for your questions.

Joffrey

K. Marie,

Thanks for the great question. It applies to loans sold to private investors, whether or not the investor is funding a new loan by placing money into an escrow, or if there's an already-closed loan that the investor is buying all or part of.

What started this were various investor losses, and particularly, a HUGE loss up in Nevada County, Ca., in which a lot of small and large investors got burned. The Sacramento Bee ran a huge article about bad trust deed deals and investor losses, and how some people (and to some extent, it was true) put way more than they should have into investments that were more risky than they needed to invest in.

Then the legislature and the regulators worked together on it, the law passed, and here we are!

I saw earlier posts about the new law, SB 978, investor suitability requirements for trust deed investments.

California now requires that when selling or brokering all of, or an interest in trust deed investments, hard money lenders and other providers have to:

1) obtain information about the investor, some of which was not necessarily required under previous law, including, but not limited to

* net worth
* other investments
* education or investment experience / level of sophistication
* career history
* age
* income
* tolerance for risk

There is a new form from the California Department of Real Estate that can be used to gather some of the information.

The form, although it asks questions some of my investors are not exactly thrilled to answer, is not all that bad.

2) The big part is that we now have to "consider the investor's circumstance and whether or not the investment is suitable for them."

That's where it gets a little more complex. Obviously, the 84 year old with only 100,000 in investable assets should not put 75,000 into a hard money construction loan - but many of the investment choices are not as clear cut.

3) 3rd new requirement: Previously, when we found an investor (1 investor) for a whole loan, there were a lot fewer requirements than when we placed multiple investors into a fractionalized loan, where each investor buys less than a 100% interest in the loan.

Now, investors in whole loans will benefit from a number of the restrictions and protections that previously applied only to investors in fractionalized loans, AND the same requirements (1 and 2 above) apply to whole loan investments.

I'm attending a conference soon, where extensive coverage of the topic will be provided.

I'm working with some attorneys and other trust deed investment providers to come up with procedures to fulfill the requirements, especially the more challenging # 2 above.

I think investments in California trust deeds will now be somewhat safer as a result of this. We (providers of trust deed investments) have a lot to implement here and those of us that do it right will likely face less competition. Some won't, or won't know how to comply......and sooner or later they'll be gone.

Joffrey Long

Joffrey Long: Specific to those involved in real estate lending, there are two new areas that unfortunately may lead to new disputes in real estate lending.

Expert witness consultation and testimony always opens the door to finding out firsthand what trends are expected or already starting to happen in mortgage lending.

Litigation, in addition to that which is already happening will be in the form of disputes related to the "Homeowner Bill of Rights" which became law, as well as the new law requiring providers of trust deed investments to inquire about and consider the suitability of California trust deed investors when they are placing funds into trust deed investments.

California passed the two laws so they became effective 1/1/13. It won't take long before some transaction goes the wrong way, someone gets upset and a dispute turns into a lawsuit under one of the new laws.

You can look up a little information on some other types of disputes involving a mortgage. Information about the different kinds of individuals providing services as a mortgage expert witness is available on my various web pages and sites, mostly accessible by Googling my name in quotation marks.

Joffrey Long

or type into Google, "Joffrey Long"