I’m not just a Certified Coach for Entrepreneurs and a licensed Mortgage Originator. I am also a real estate investor, private lender, joint venturer, and business partner. One of my favorite and best business partners and I have a private loan on which we are currently foreclosing. We have tried every avenue we could think of to avoid this course of action. Alas…
Many times I have heard borrowers make a statement like, “Well if I don’t pay, you get the property back.” They seem to believe that this makes a deal bullet-proof. This week I am going to share with you some reasons that this does not, at all, make a deal bullet-proof.
First of all, as lenders, we don’t want the property. If we wanted property, we would buy property and not lend money. (I have heard rumors of lenders who want the property, but I have never actually encountered them, so I'm going to exclude them from this conversation since I can’t prove they exist.) What we lenders really want is to be paid our money back, plus some extra for our troubles.
My partner and I wanted to collect our principal and our yield
and go merrily on our way.
However, we are probably about to get this property back and we are not thrilled about it.
Second, we have made some discoveries through the course of this foreclosure process. Or, rather, our attorney has. Our loan is in first lien position on one higher value property, and we cross-collateralized a half dozen other properties in second lien position to offset some of our risk in this transaction. As it turns out, we were absolutely right in our skepticism. As per legal and customary, we have notified any and all other lien-holders on our primary collateral upon which we are foreclosing. Not surprisingly, there is a second position lien holder. And a third. And a fourth. Yes, a fourth position lien holder. I have not personally communicated with them, but our attorney tells me that the lender had no idea that his was a fourth position lien. This lender evidently made a very sizeable loan without a title search and without verification of payment from the current lender (my partner and me). In fact, not one of the junior lien holders has reached out for any sort of verification or reference of any kind. Friends, as you know, I am actively working to increase my searchability on the internet, ie. I am not difficult to find. Not only is a fourth lien position unfathomable to me at all, the loan amount is greater than the principal of the first three liens combined. Please don’t let this happen to you. If you are a lender, make sure that you verify the payment history of your borrowers, and never ever skip a title search by a reputable title company.
Which brings me to my third point: our attorney has also discovered that one of our cross-collateralized properties has been sold. Well… we haven’t been paid off and we haven’t released our lien. I wonder if the buyer has any idea that there is an outstanding deed of trust on their newly acquired property? And I sure hope they got title insurance. I can’t count how many times I have heard the question, “Do I really need title insurance?” I’ve heard it asked both by buyers/borrowers and lenders. I have also, as a lender, had borrowers tell me that I don’t really need to cost them that extra money for lender’s title insurance. After all, they have title insurance, or this is a refinance, or whatever reason they give. Don’t cut costs on this, friends. Get the title insurance. I don’t know yet if the buyers of this property did. My partner, our attorney, and I are dealing with one hurdle at a time and we haven’t reached that one yet.
Fourth, not all deeds of trust are created equally. Until very recently, I was not aware that I needed to have strong preferences about who prepared our deeds of trust. When we made this loan, we allowed the borrower to choose the title company, and though we did get lender’s title insurance and title searches, we also allowed the borrower’s selected title company to prepare the deed of trust. I have now come to understand, with our attorney’s patience and guidance, that there are some… irregularities, shall we say? Our attorney shared with me that he approached the title attorney who prepared the deed of trust to ask him why he did it that way. The answer: so that lenders have to come back to him due to the irregularities if they want anything else done with that deed of trust.
In other words, he’s intentionally causing future frustrations
to increase his long-term business revenue.
This hardly sounds ethical to me. Make sure you know who you’re dealing with, even if it seems mundane. Thankfully, we have a very well-constructed note, which we did not have the borrower’s title company prepare.
Fifth, be careful of people trying to impress you with their social status or reputation. I’m not much of a shopper. In fact, I am generally quite avoidant of shopping. But I decided to go to Target on Christmas Eve in 2023. As I parked my car to go inside, my phone rang and it was a number I knew. On the other end, a gentleman I had worked with successfully in the past excitedly told me about a loan that he wanted to make but he was short on funds. He wanted to know if my partner and I were interested in the deal. I sat in my car in the parking lot listening to the details. Allegedly, the borrower was a big shot, in more ways than one. A former career in entertainment, turned real estate developer, and he was working on a hot new project. (No, he is not also in politics, to my knowledge.) He just needed a little short term capital to get him over the finish line and we would be out in a few brief months. Easy, breezy, lemon squeezy. The caller was clearly taken aback when I suggested some stout terms under which we might be enticed to do this, and he explained to me that this person had “social capital.” My response was, “Well he’s got you calling me in the Target parking lot on Christmas Eve, so he must not have that much social capital.” Unfortunately, it seems that I was correct.
Why would I tell you this miserable story if I want you to do business with me?
That’s a fair question, and one I had to ask myself before I shared this. I believe fundamentally in “failing forward,” and I want you to trust my authenticity with the knowledge that I practice what I preach. Sometimes I do have to metaphorically sit in the mud and cry about it for a minute, but I choose to see my mistakes as stepping stones and not as anchors that weigh me down. Plus, how will you know all the ways things could go wrong if no one tells you that it happened to them?
Many times I have been approached privately in hallways, elevators, even restrooms by someone with tears in their eyes as they tell me how much my honesty and vulnerability have meant to them. Many times I have had the privilege of lending my strength to others. In order to do that, I have to tell the hard parts, too.
