All Forum Posts by: Corey Dutton

Derek, my post refers to a private money, non bank loan. SBA financing is government backed financing and is most often originated through a bank. This is NOT private money financing. Please don't confuse the readers for the sake of arguing...

@Derek Lacy

Just to clarify, there is only one type of insurance that is paid upfront, PRIOR TO CLOSING. This is the property hazard insurance. The title insurance is paid AT CLOSING. Further, you can also choose to have the property hazard insurance paid out at closing as well, and not pre-paid. But the hazard insurance is something only YOU control, this means you order if from your chosen insurance agent. Title insurance is typically ordered by the lender and is paid at the CLOSE OF THE LOAN and not before the loan closes, as in the example I used above where lenders demand some form of insurance is paid prior to the closing of the loan. I'm trying to prevent readers from being confused by Jeff S's comment. Hope that helps clarify a bit more for the readers here.....

There’s a fairly new scam in private money loans that is being pushed by fake private money lenders. Any non-bank loan from a private money source is considered a private money loan, including bridge loans, hard money loans, and all types of alternative financing. If anyone offers you a loan, but first asks that you purchase some sort of insurance such as life insurance, loan insurance, etc., this is a scam. The only type of insurance required for a loan is hazard insurance for the property itself. This is obtained through your own insurance agent as well, and is very similar to homeowners insurance for a personal home.

If anyone offers you a loan but requires you to obtain life insurance or some other form of insurance other than hazard insurance for the property itself, this is likely a scam.

Posted by Corey Curwick Dutton, Private Money Lender

Found guilty in conspiring with 20 other traders and brokers to rig LIBOR to benefit his own trading positions, Tom Hayes was finally convicted and sentenced to 14 years in prison by a U.K. judge. This is the longest prison term for a banker or trader in the U.K. since the outset of the financial crisis in 2008. Because trillions of Dollars in financial products, investments, mortgages, etc. are linked to the LIBOR benchmark rate, this is a huge infraction and is almost cartel-like in its very nature.

Prosecutors say Mr. Hayes attempted to rig LIBOR on almost a daily basis while at UBS. He later moved to Citigroup and tried to do the same there, but was quickly fired after an internal investigation which uncovered his actions. This is the longest prison term given on a financial fraud case in the U.K. The judge in this case seeks to set an example. My opinion is that the sentence given to Hayes is not stiff enough. This fraud essentially undermines any previous confidence in the entire financial system. And further, given that such a small group of individuals could undertake such a fraud without detection, what other manipulations are going on that we aren’t yet aware of? Want a historic verdict to set an example to hold people accountable in the industry? That sentence given to Tom Hayes should have been life in prison.

Posted by Corey Curwick Dutton, Private Money Lender

Article Source: http://podcast.ft.com/p/2888

Real estate investors have long used private money lenders to finance their real estate investments. A real estate investor, who we funded loans for in the past, confided in me that he was preparing to do a new property acquisition using a friend’s private funds. I asked how the lender planned to secure the loan and the investor informed me that the lender would only require a promissory note to be signed to secure the loan. The problem with this lender making this loan is in the Promissory Note that is intended to secure the debt on the property.

A promissory note is only a “promise to pay,” but it is generally not recorded. In order for a private money lender to secure repayment of a promissory note with the real estate, a lender must use a deed of trust, or a mortgage. If the private lender makes the loan to the investor and secures it to the real estate with only the promissory note, this will not be sufficient security. But why? A deed of trust is sometimes referred to as a security document because it secures the promissory note to the real estate by creating a record in the County where the real estate is located. This recorded document creates the lien against the property that is a notice to the world that there is a debt owed to the lender. Without it, the investor could resell the property without paying back the private money lender.

Bottom line, if you’re planning on making private money loans to friends, investors, and others - pay attention to this. Always use a Deed of Trust or a mortgage to secure repayment of a promissory note with real estate. 

Should Congress fail to raise the lending limit on the SBA’s 7(a) loans, the program will be out of money in August. Since no more loans could be backed by the program again until October 1st when the new fiscal year starts, this represents an opportunity for private money, non-bank lenders to fund these loans in limbo.

But why does the lending limit on these types of SBA loans need to be raised? The annual volume of the SBA 7(a) loans has increased year over year for the past 3 years and is expected to break a record in annual volume for 2015. The pending Bill would increase the lending limit of this program from $18.75 billion to $23.5 billion. The good news is that raising the lending limit doesn’t cost the Federal government more money, since the cost is covered by the fees paid by the borrowers.

Should Congress fail to raise the lending limit in time, many of the loans destined for SBA 7(a) funding will have to pivot over to private money lenders for funding. These include all types of non-bank sources of financing such as hedge funds, hard money loan brokers, and other private money lending groups.

Everyone is on pins and needles waiting to see if Congress will be able to pull off a miracle, particularly the borrowers of the 7(a) loans who are mostly start-ups and existing small businesses that use these loans for general business purposes. But with lawmakers going on recess in August, will they be able to pull it off in time?

(Source: American Banker: http://www.americanbanker.com/news/community-banking/congress-races-to-reopen-sba-7a-loan-program-1075660-1.html )

Posted by Corey Curwick Dutton, Private Money Lender

LOL Joel, I like that phrase about "unwinding a deal." Use it in a context for us please. Love it!

Thanks Scott S., totally agree. Especially when another deal is not in sight.

Good for you!!!!

There’s a term in business and investing known as a, “sunk cost.” When entering into a real estate acquisition, an example of a sunk cost could be money spent on inspections or on other due diligence, time spent in analyzing the property, etc. These are all examples of sunk costs. The rule with sunk costs is: Never throw good money after bad money.

Recently, a past client that we’ve funded deals for before came to us with a new real estate acquisition. After we analyzed the value, we discovered a property that had recently sold, located only a stones throw from the subject property. This newly discovered comparable sold far below where the real estate investor intended on reselling the property. We provided the real estate investor with this newly discovered value information. With much pain and deliberation, he tried to decide if he should proceed with the acquisition anyway. But why should he? He already spent a ton of time and money on the due diligence. But what if he doesn’t make money on the deal?

All of the monies spent to date on the deal are sunk costs. And what is the rule with sunk costs? Never throw good money after bad money. If this real estate investor decided to proceed anyway, he would not make money, or worse, lose money trying to save his sunk costs. When acquiring real estate, your due diligence is considered a sunk cost if it reveals that the deal is not as sweet as it looked before. Never throw good money after bad money on a real estate acquisition!