Category: Preparation

Joe – thank you for taking Damian’s call and introducing yourself and your programs to him…it will be his responsibility to walk besides our customer all the way through the process of installing their system….and, one of the items on his list is to refer them to lenders…

Please consider him a valued resource of EBPOS –

Thank you in advance for your assistance…

Dan

DID YOU KNOW?

> Credit agencies > There are at least 10 major and over 100 minor mitigating factors that can influence your credit scores  and ratings >Using the same vendor for a trade reference for more than one corporation you own can either create a “family tree” or flag your file >Types of lenders versus types of brokers that pull your business credit report can potentially cause your corporation not to get funding >The number of lenders that pull your report in a month’s time can cause your credit scores to drop if your profile is not built properly >Your address (City and State) can put you behind the industry standard for funding your type of business >Amount in funding is determined by your state in which you incorporated and in the state you are licensed to do business >Using National vendors as trade references can cause delays in how quickly your company establishes scores

Basics: What is Hard Money?
Hard Money loans are non-institutional loans funded by private real estate investors, companies and funds – using their own money – secured by a first, second, or third Trust Deed against the subject property.

These types of loans are referred to by many different names, such as private money, private equity, equity, equity only, equity-based, equity-driven, or asset based.

Equity-driven mortgage loans typically require 25-50% equity in the property and/or collateral in another piece of real estate, although some lenders will accept other assets such as stocks and bonds as collateral for the loan.

These types of loans also carry a heavier burden and interest rate for the borrower for the simple reason that they also pose higher risk for the lender and are often a temporary solution that opens doors for a more permanent financial solution or exit strategy.

Equity based loans offer an alternative to strict and narrow traditional bank (institutional, conventional) financing, thereby eliminating many of the usual qualifying, credit and income underwriting guidelines and delays of banks, mortgage companies or institutional lenders for traditional mortgage loans.

Equity lenders base their decisions on the unencumbered property value, its marketability, the borrower’s exit strategy and his or her ability to repay the loan. They generally do NOT calculate debt ratios and usually do NOT take into account the borrower’s credit and income. Funding is very fast; sometimes within days of receipt of the application – a true advantage over traditional bank financing.

Basics: History

Hard Money is a term that is used almost exclusively in the United States and Canada where these types of loans are most common. The term “Hard Money” generally infers that the borrower has actual “hard” cash invested.

The hard money industry began in the late 1950s when the credit industry in the US underwent drastic changes.

The hard money industry suffered severe setbacks during the real estate crashes of the early 1980s and early 1990s due to lenders funding properties at well over market value. Since that time, lower LTV rates have been the norm for hard money-lenders seeking to protect themselves against the market’s volatility.

Legal & Regulatory Issues
From inception, the hard money field has always been formally unregulated by state or federal laws, although some restrictions on interest rates (usury laws) by state governments restrict the rates of hard money.

Basics: General Use
Use a hard money loan to:
»     Purchase real estate – with a sufficient down payment (25% or more), you can secure a new 1st mortgage with a hard money loan
»     Refinance a loan – to obtain cash from equity, pay off a balloon mortgage, refinance a delinquent loan to prevent a foreclosure, pay off a Chapter 13 bankruptcy, and others. You need at least 25% or more residual equity left in the property after the new loan, including points and fees, to qualify
»     Add a 2nd or 3rd mortgage – hard money loans can be used as subordinate financing to existing 1st mortgages for cash out for debt consolidation, remodeling, repairs, business loans, investments, or for any other reason
»     Secure a bridge loan to purchase new real estate before selling your current property
»     To complete construction or rehabilitation on residential or commercial property

Note: The amount of required equity for hard money loans varies by
property type and investor.

Basics: Credit
Conventional and sub prime lenders rely on a credit grade system or “FICO” score.

The FICO system is a complex matrix measuring over 30 different variables in an individual’s credit profile. The FICO system converts the profile into a numeric score, which is added to an individual’s credit report. That score is a reflection of the computer assigned credit risk for that individual. The intent is to reduce the amount of subjectivity underwriters (credit decision makers) inject into the risk analysis process.

Borrowers with a score below 720 usually find themselves locked out of the best loan rates and terms offered. Typically, borrowers with a score below 500 are locked out of the Conventional and sub prime market altogether.

Unlike conventional and sub prime lenders, Hard Money Lenders rely on the equity position in the property to guide their credit decisions.

Basics: Qualifying
The 3 criteria you must have to qualify for a hard money loan:
1.     Sufficient remaining equity in the property. (Typically 30% or more after the new loan, including points and fees. The amount of required equity for hard money loans varies by property type, location and investor.)
2.     An acceptable property in a marketable area (at the investor’s discretion)
3.     The ability to repay the loan to the investor (required by law)

In all cases, the general qualifying process is the same: the investor/lender uses real estate as collateral. The real estate is reviewed to determine whether it holds sufficient value for the investor/lender to be willing to take the risk of making a loan based on this collateral. The borrower’s financial state and future potential is reviewed to determine the risk factors present. And finally, an exit strategy is reviewed to determine whether the loan will be completed satisfactorily within a given time frame. Depending on the results of this due diligence process, the investor /lender determines whether – and at what rates and terms – to fund the loan.

Basics: Typical Scenarios
There are many reasons for seeking private financing. Just to name a few:

»     You have bad credit, minimal credit, or NO credit – Credit Impacted: low credit scores (below 500 FICO), no credit score, poor, damaged, bad, bruised, impaired or less-than-perfect credit, limited or non-existent credit, Late Payments, Slow Pays, Consumer Credit Counseling, Collections, Charge-Offs, Repossessions, Judgments, Tax Liens, Bankruptcy, Notice of Default, and Foreclosure. (note: tax liens, current bankruptcy, judgments, clouds on title, etc., may require resolution prior to or at closing); Sufficient equity and the ability to repay the loan are generally more important than your personal credit;
»     You have high debt-to-income ratios (too much debt) to qualify for a bank loan —provided you have the necessary equity in your property (or down payment) and the ability to repay the loan, our hard money lenders can make allowances for excessive debt;
»     You have non-verifiable, inconsistent, or unusual income or are, Self-employed, Un-employed or Laid-off — provided you can make the loan payment, hard money lenders will accept loans made to persons who have unconventional incomes. If you have no income or means of repaying the loan, you might not qualify for a hard money loan;
»     You have a rural property, unique property, nonconforming property, or mixed-use property and have found it difficult to qualify for a conventional loan, as long as there’s sufficient equity in the property, and if the investor/hard money lender deems the property a worthwhile investment, you may qualify for a hard money loan;
»     You need a cash equity loan with less than perfect credit and have a 1st mortgage with a negative amortization feature — with the right amount of equity after the required adjustment for the potential negative amortization you may qualify for a 2nd mortgage hard money loan;
»     You need a short-term loan to build, rehab, or remodel real estate or make improvements to raw land prior to selling the property or refinancing into long-term permanent financing (note-hard money loans used for these purposes require a future value appraisal and construction documentation for approval);
»     Balloon Payment Due; Refinance your initial balloon loan into a more traditional loan structure, on or near the date the balloon payment becomes due;
»     Complex financing structures. The property is in the name of a “non-natural person” – such as a trust, LLC, partnership, corporation, Non-profit organizations (churches, foundations) or an entity – rather than an individual;
»     Property has characteristics making it difficult to obtain a bank loan, including but not limited to: Partially or nearly completed construction of building, Property improvements – Rehab, High Vacancy – loan is needed to increase occupancy of income property, Seismic (Earthquake) retrofitting;
»     You want to remain anonymous. A borrower/investor may not want the transaction on their credit report or the mortgage in their name. Unlike most conventional financing hard money lenders do not report to credit agencies and allow title to be held by an entity;
»     You want to maintain your privacy.  Sometimes individuals prefer to arrange private financing for reasons of privacy. For example, some people would prefer to buy a recreational property with private funds vs. institutional financing. They simply do not want their financial institution to know about all of their financial dealings;
»     You need a business loan secured by equity in real estate, but cannot qualify or wait for a conventional business, commercial, or SBA loan;
»     You are a Foreign National with no long-term U.S. employment or other assets;
»     Creative transactions such as: interest only payments, partial deed release, and participations are usually considered;
»     Purchase of Note(s) secured by Deed(s) of Trust (performing & non-performing);
»     Note Hypothecations (Loans secured by Assignment of Note(s) & Deed(s) of Trust);
»     Quick funding for time sensitive loans;
»     Loss of bank loans, for any reason, including, {Turn-downs, previously Declined} declines and excessive conditions;
»     You have a Loan (a borrower and / or a property) that falls outside the guidelines of traditional financial institutions and sub-prime lenders; Such as – Complete workouts to pay off heirs and partners of probate estates, Estate and/or Property held in Probate (Trusts, Family Limited Partnerships, Irrevocable Trusts, corporations, etc.), Current Notice of Default/Sale, Distressed Property Purchase, Property in Receivership, Remove an existing NOD, Tax Liens/Judgments, Other Liens (Homeowners Associations, property taxes, etc.), Foreclosure Bailout or Receivership, Bankruptcy (Old or current), Cash-out Refinance, Divorce, Medical Emergency, Unemployed, etc. With “private lenders” the hard assets are the key.

Basics: Considerations
Do not consider a hard money loan if …

»     You would have less than 30% or more equity remaining in the property after the new loan, including any points and fees financed (Note: the amount of required equity for hard money loans varies by property type and investor);
»     You are looking for a low-interest rate loan, or a loan with low points and fees;
»     You cannot verify any source(s) of income or employment;
»     You cannot repay the loan according to the terms of the Note;
»     You are looking for an unsecured or personal loan, or open-ended line of credit;
»     You are not willing to pay for and obtain a current value appraisal, if required;
»     You are not willing or able to provide a “future value” appraisal for a hard money construction loan or remodel loan, including an itemized cost sheet, plans, blueprints, a licensed contractor, and permits where required;
»     You are looking for an “angel” or speculative investor to fund a project without sufficient collateral or personal equity stake;
»     Your property is in poor physical condition, or has extensive deferred maintenance (unless the loan is used to verifiably renovate the property).

Basics: Interest Rates, Terms, Points & Fees
Interest rates, terms, points & fees for hard money loans:

»     Interest rates vary between 8.00%* and 18.00%*, depending on the investor, borrower qualifications, loan amount and purpose, property type, location, lien position, term, prepay period (if any) and any applicable state and federal law; state and federal regulations for Section 32, AB489, and any/all other federal and state-level predatory lending regulations.
»     Terms vary between 90-days and 30 years, mostly interest-only (some amortizing loans), depending on the investor, borrower qualifications, loan amount and purpose, property type, location, lien position, term, prepay period (if any) and any applicable state and federal law; state and federal regulations for Section 32, AB489, and any/all other federal and state-level predatory lending regulations.
»     Points: 2 to 10 points charged, depending on the investor, loan amount and purpose, borrower qualifications, property type, location, lien position, term, prepay period (if any) and any applicable state and federal law; state and federal regulations for Section 32, AB489, and any/all other federal and state-level predatory lending regulations.
»     Fees: processing, underwriting, title insurance, escrow, doc prep, recording, wire transfer, title messenger, survey, and other fees also apply when applicable. Appraisal fee, where required, is prepaid by borrower C.O.D. at the time of service.

*Indicates the Note rate, not APR. APR will vary based on total finance charges, term, and state law where applicable.

Basics: Urban Legend
There is a common misconception about “hard” money-lenders & borrowers.

Fallacy:
Hard money loans are made by shady characters to borrowers who are desperate, in trouble, and without options.

Fact:
Hard money lenders can be private individuals with a strong positive net worth who have money to invest, an individual with a self directed IRA, an individual that offers seller assisted financing, a real estate investor, an investment club, a trust/pension fund or a private company – all with the desire to receive a fair return (commensurate with risk) on their investment.

Hard money borrowers are, most often, stable individuals or real estate investors or investment companies that have circumstances which fall outside the guidelines of traditional financial institutions and sub-prime lenders or opportunities that require speed or flexibility unavailable through more conventional financing.

Remember you’ll call us when the Bank Says No!!!

Hi Joe
 
Thanks for your constant faithful emails
 
This is Valentine’s Day and you know that Jesus and the Father and the Spirit of God love you immensely.  Praise God!
 
Business is good.  I am activating my law license and am starting to work with a couple of local attorneys.
 
We are able to get most home mortgage reduced to zero in 3-6 months.  Amazing benefit to homeowners.
 
Call if you have questions, interest, or clients.
 
Peace and blessings,
 
Charles

Referral Partners
Why Us?

We work closely with independent mortgage brokers, real estate brokers, bankers, attorneys, accountants, business managers, and other professionals seeking fast, reliable financing for their clients, while providing a value added service to handle hard to place loans with varied circumstances – enabling you to keep your clients in-house.

Why refer to us? Because we understand the needs of your customers, we offer  expertise to head off potential problems, and expedite financing. Our processes are geared to help your customers reach their financing goals. In most cases we are able to fund transactions that conventional lenders cannot or will not and we get the job done faster!

We choose our partners carefully. We understand that a referral is much more than just a name and a number. It’s a closely guarded relationship built over time. Our commitment is to advance your professional reputation while providing a venue to help your clients meet their most critical financing and timing needs.

Your customers are why we are in business. Our customers are you – the loan intermediaries – who refer your customers to us. Your customers are the borrowers who have good equity and a plan, but may have been turned down based on their previous track record, credit rating or the uniqueness of the loan request. Let us help you extend our services to your customers.

You and your clients always have our Guarantee:

* We will always treat your clients as you would from first contact through loan payoff.
* If we are asked to do a transitional loan for you, we will return your client when our job is done.
* You remain in the loop throughout the loan cycle.

Cash Flow Specialists offers a private banking intermediary experience providing value-added support to you; your associates’ and your clients finance efforts. For more information or assistance, please contact us directly at 800-669-2700.

As always we are here to serve you and those whom you choose to refer 7AM to 5PM M-F Pacific.

This came in Friday evening February 6th:
Dear Joe,

I just wanted to send you a note in appreciation of the time you have taken on our last two conference calls. Despite the fact that neither one of these deals may, in fact, be funded under the current circumstances, I wanted you to know that both I and my clients deeply appreciate the time you have spent, the advice you have given, and your forthrightness and openness in discussing the projects involved. For me , personally, it is  a pleasure to deal with someone who is as knowledgeable, professional, courteous and considerate as you have been. I look forward to, hopefully, being able to build a relationship with you based on successful deals to be funded in the future. It is truly a pleasure both from a business and personal perspective to interact with you. Thank you, again, for your time and consideration.

Your’s truly,
Joseph P. Amato

Joe is an attorney in Las Vegas. He was referred by the ACFA, a group that I’ve been a member of since May 1998.

Unlike borrowing against your home, financing a commercial property can be a confusing and frustrating experience. There are many borrowing options for commercial real estate buyers and owners. Take the time to understand all of the elements of a lender’s mortgage program instead of simply focusing on interest rate. Becoming well informed can save you time and money during the loan origination process and in the future.

Here are eight important questions every prospective borrower should ask before selecting a commercial mortgage lender:

1. What is the maximum amount I can borrow?
You should first ask yourself: what are my capital needs both now and in the future? Some borrowers prefer to pay a slightly higher interest rate in order to maximize the amount of money they can borrow, as more cash on hand means more capital to invest in your business or additional real estate.

Typically, commercial lenders will loan up to 75 to 80 percent of the property value, requiring the borrower to come up with a 20 to 25 percent down payment. On a $500,000 property, that totals as much as $125,000 down. However, programs exist that allow you to borrow in excess of 80 percent of the property value. If maximizing cash is your primary goal, then paying a higher monthly payment may be a small price for the added capital a higher loan-to-value (LTV) ratio provides.

Additionally, you should also ask your lender if their program allows you to take out a second mortgage, either at closing or in the future. Choosing a lender that allows second liens will add flexibility in meeting your future capital needs, and will allow you to capitalize on your property appreciation without a costly refinance.

2. Is there a balloon payment?
Many commercial mortgages include a balloon payment. While balloons may be a useful option for residential borrowers looking to lower their rate, most commercial mortgages have a balloon payment, generally due in 3 to 10 years. A balloon loan will likely cause you to have to refinance the loan before the balloon date. This could mean spending thousands of dollars in closing costs, and risking a higher-cost loan if interest rates have risen. If you are in the midst of difficult times with your business or have vacancies, you run the risk of not qualifying for a loan renewal with your lender. Programs that do not require balloons may make more sense, depending on your situation.

3. How soon will I have a solid commitment, and how soon can I close?
If you are shopping for a property and need to be pre-qualified for financing, or if you are looking to close quickly, make sure you get a clear picture of your lender’s timeframe. Unlike residential mortgages, traditional commercial lenders often must review your historical income statements, asset statements and other documentation before giving you the thumbs up on your loan application. It can take weeks before you learn whether the lender wants to take you on as a customer.

4. Will I have to maintain minimum assets or deposits?
If you are looking to a bank for your commercial loan, ask your loan officer if you will be required to hold a minimum level of deposits at the bank in order to qualify for the loan.

5. What are the documentation requirements?
Many lenders require a large amount of documentation, so it’s important to ask upfront about the amount and the types of financial documents that are required. Locating and providing copies of leases, operating statements, tax returns, asset statements and other financial documents can be quite challenging and time consuming.

6. How much financial reporting is required, and what financial covenants must I make?
When obtaining a commercial loan, many borrowers are not fully aware of all the future obligations imposed by the lender, beyond simply making the monthly payment. Some lenders will require you to provide quarterly or semi-annual financial and operating statements on your business or property for as long as you are in your loan. Be certain to ask your lender about reporting requirements and financial covenants. If the risk is not acceptable to you, find another lender.

7. Is the loan assumable?
Unlike residential mortgages, it is standard for commercial mortgages to charge prepayment penalties for early repayment of a loan. If you think there is a chance you may be selling the property in the near future, ask your lender if the loan is assumable by your property buyer. Assumable loans allow a buyer to take over the mortgage terms and loan payments. It is also an excellent selling point that can enhance the marketability of your property when you list it for sale.

8. What are the total costs associated with getting the loan?
A little research upfront about the costs associated with the loan can potentially save you thousands of dollars. Be sure to ask about all costs you will be responsible for, including lender fees and points, property survey, environmental reports, and any legal fees that might be associated with the loan. Some lenders will have less expensive alternatives, or will bear these costs altogether.

When shopping for a commercial mortgage loan, remember that there are vast differences between lender programs. Different loan programs should not simply be compared based on the interest rate. Asking the questions outlined above can save you time and money.

Content provided by Commercial Direct®, a division of Bayview Financial Small Business Funding L.L.C.

Large Project Funding
We have five funding sources open to large projects of $4m to billions.

Source A is an investment banker in FL who has been in the business for approx. 30 years. He has access to eight different programs including a Trust that does JV’s.

Source B is presently closed. They are scheduled to re-open this late February 2009. I have a call into their underwriter.

Source C is open but they have not funded the transactions that they approved for our clients. They have been in business for many years and have funded tens of billions in projects globally.

Source D is not available.

Source E is presently closed. They are in the process of funding several of our clients. This came in from the SrVP of this program Wednesday February 12th:

Joe,
RE projects are tough! I am afraid I do not have a solution nor a referral for your projects. I am in Maine right now, will be back in NY perhaps on the weekend and anticipate to be in Vegas middle of next week.

Jerome

We have additional sources that are not posted on the matrix.

Posted 2/14/09

Today more than ever before it’s important to “polish” your presentation. For as long as I can remember 85% of funding has been presentation.

The four keys to funding that we teach improve funding ability exponentially. Take time to read and study our materials thoroughly. Listen to the MP3 recordings.

Call for additional coaching from Joe at 925-691-8200.

As always we appreciate your business and your referrals.