All Forum Posts by: Lupe Santiago

Bill Gulley, thanks for the post. Can you elaborate on the regulation of prepaid interest? Are there federal rules governing this? Or is it all state law? To your knowledge, do most states disallow the charging of prepaid interest when lending as a private individual? This is the first time this has been brought to my attention.

John Thedford - Thanks! That's very clear.

John Thedford

Is that how usury works? It can lead to some absurd results if it's based on your annualized holding period return.

For example: Borrower executes a note at 12% secured by mortgage for $100k in my favor with 3 points and a 9 month term. I take out 3 points when I fund so I wire Borrower 97k. 2 days later, I sell the note at par and assign the position of mortgagor to my cousin. I made 3% in 2 days. So based on a 360 day year, I just made 540% and ran afoul of the usury law? Or does it not apply to the sale, but rather only the origination of the loan?

So 12%, 3 points, 6 months is ok, but 12.01%, 3 points, 6 months is not ok, yes?

Bill Gulley, I would sell the note that I closed to friends/family. They wouldn't be the original lender, and they would have no contact with the borrower. All they know is that I'm buying notes with my own money and there would be verifiable wire records to substantiate that. The exemption in FL seems to say that I can do this as long as I bought it with my own money in the first place. This just seems too good to be true.

Kevin Rain, it depends on who's borrowing. $50k probably won't cut it because that's barely enough for one loan. If you are dealing with a friend who's just going to flip one property every so often, then maybe he'll find it worthwhile. On the flip side, do you really want to trust $50k to someone who only casually invests? Flipping is not easy... you have to be committed to doing it and really pour in a lot of time, not to mention have good experience in dealing with the local market + contractors. Even $100k is on the low side from my experience. As a HML, you need to be a reliable source of capital for the borrower. Most people looking to flip don't just submit 1 deal and get it. They submit hundreds of offers and approvals just come in at the most random times. Sometimes you'll be dry for months, and then all the sudden have 5 that are approved that you need to close within a month.

The reasons why people use hard money are because of its flexibility, quickness, and low hassle. When a bank approval comes in for a property, they don't give you much time to close the deal. Sometimes it's as little as 7-10 days from the time of approval. Money needs to be available on demand. From my point of view, you need at least a couple of hundred thousand (depending on the market, the borrower, what they're looking to flip) to appropriately meet the demands of a borrower who is flipping as a business instead of casually.

If you are looking to just buy hard money notes from brokers, well any amount will do as long as you can fund a property. It's basically just buying a securitized note. If you want to be the one that tries to create the deal and meet the demand of the borrowers, it's a much more difficult ball game that requires a more significant amount of capital.

John Thedford, do you know of any time restriction on notes you own? Can I make the loan and sell it to my cousin the next day? Do I have to wait a certain amount of time?

Wayne Brooks, yes I do have a real personal relationship with the principals of the company and I have been to FL a few times to scope out the market!

John Thedford, thanks for your input. Am I reading exemption 494.00115(2)(f) correctly, in that if the loan I made was exempt appropriately because it was funded with my own money for my own investment, I can sell it as long as I'm not holding myself out to the public as being in the business of mortgage lending? I have family and friends with cash who are itching to get securitized higher yielding instruments, and selling the notes I have could be a great way to increase my returns and their returns. I wouldn't advertise them or anything to anyone but people I already have a relationship with. Any time restriction? Does it make a difference whether I hold for a day, month, year, etc...?

I will look through the statutes to try and find if there is any dollar amount trigger for busting the exemption.

Bill Gulley thanks for the reply. There wouldn't be any kind of advertising involved with this - not even Craigslist. I have a previous business relationship with the company that is rehabbing in FL and for the time being, all my loans will be made to the LLC. Based on the language of the exemption in 494.00115(2)(f), it seems that I can even sell it to people as long as I don't "hold myself out to the public as being in the business." I do have family members and close friends who are also looking to park their money in higher yielding returns.

Wayne Brooks, you are right that short sale doesn't always mean good deal! I make sure to research the investments myself. No return ever comes without at least some risk and effort :)

Steve K, it's a small venture, but they are offering me 70% LTV based on their purchase price (short sales), 12.5% interest, and 3.5% points with 6 month maturity. I think it's a pretty competitively structured offer.

Hi! I have the opportunity to make some loans to a home flipping business in FL (structured as an LLC) secured by first position mortgages on residential real estate. I've looked through the laws myself ( http://law.onecle.com/florida/regulation-of-trade-commerce-investments-and-solicitations/chapter494.html ) and want to share what I have found about exemptions for individuals lending private money secured by mortgages on residential property. I am not asking for legal advice, just opinions and peoples' experience with private lending in FL. I am not a broker or any kind of licensed real estate professional - just an individual looking to park my money in some investments. I would be directly lending to the company and taking points + interest (all within usury limits).

Anyway, here goes with what I've found:

• Mortgage Lender: “A person Making a Mortgage Loan or Servicing a Mortgage Loan for others, or, for compensation or gain, directly or indirectly, selling or offering to sell a Mortgage Loan to a Non-Institutional Investor.

• Mortgage Loan: Any:
• Residential Loan primarily for personal, family, or household use which is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a Dwelling, as defined in s. 103(v) of the federal Truth in Lending Act (TILA), OR for the purchase of residential real estate upon which a dwelling is to be constructed (raw land);
• Dwelling (TILA): “a residential structure or mobile home which contains one to four family housing units, or individual units of condominiums or cooperatives.”

• Making a Mortgage Loan: “Closing a Mortgage Loan in a PERSONAL NAME, advancing funds, offering to advance funds, or making a commitment to advance funds to an applicant for a Mortgage Loan.”

• Exemption: “The following are exempt from regulation under this part (Part I – ‘General Provisions’) and Parts II and III ( II – Mortgage Brokers, III – Mortgage Lenders )
• (2) The following persons ARE exempt from regulation under Part III (Mortgage Lenders) of this chapter:
• (e) An individual Making or Acquiring a Mortgage Loan using his or her OWN FUNDS for his or her OWN INVESTMENT, AND who does NOT hold himself or herself out to the public as being in the mortgage lending business.
• (f) An individual selling a mortgage that was made or purchased with that individual’s funds for his or her own investment, AND who does NOT hold himself or herself out to the public as being in the mortgage lending business.

So my thoughts are that it looks like I can make the loan to the company and charges points in addition to interest. Not only that, it appears that I can sell the note. Am I missing something here, or is FL pretty loose with the laws? I know there's always the great debate about intended use of the loan (business purpose, non-owner occupied) vs. the nature of the asset underlying the loan (residential whether owner-occupied or not vs. commercial). To me, FL makes it look clear that private unlicensed lending on non-owner occupied residential real estate is OK.

Thoughts? Am I missing something here? Other regulations or rules to be concerned about before pulling the trigger on this? Also, what are the boundaries of "holding oneself out to the public as being in the mortgage lending business" ?? Wow, long post - thanks for taking the time to read :)