Page 1

SPECIAL REPORT

Fair Housing & Lending

The Official Magazine of AAPL March/April 2017

LEADERS IN THE FINTECH REVOLUTION 5 IDEAS FOR FINANCING A TRANSACTION IF YOU TRULY ARE LEADING, THEY WILL FOLLOW

PAGE 22


Financing for Private Lenders Spend less time raising capital and more time originating loans!

Build your brand with quick, reliable financing from table funding through payoff Industry leading fix-and-flip loan program 90% LTC/70% Loan-to-ARV Gain a competitive advantage with no limits on loan volume, rates, or fees GET STARTED TODAY LenderFinance@LimaOneCapital.com www.LimaOneCapital.com/LenderFinance

2 PRIVATE LENDER


CONTENTS MARCH | APRIL 2017

5

7

Corner Office

12

What’s Current

Special Focus: Fair Housing & Lending

Compiled from Industry Sources

by Teresa Bitler

22

29

Why AAPL is committed to ensuring fair lending.

Trending industry topics and news from around the world of private lending.

18

by Linda Hyde

Special Focus: Fair Housing & Lending

A primer to help lenders understand how the Fair Housing Act impacts them.

Lender Limelight

Today’s concept of fair housing goes beyond Title VIII of the Civil Rights Act of 1968.

Legal

Geraci Law Firm co-founder is a woman of many interests—and achievements.

Fighting Fraud: How SBA lenders can avoid False Claim Act violations. by Dennis Baranowski, Esq.

with Christina Geraci

by Andy Williams

32

38

Alternative Angle

42

Finance

Alternative lenders are leading the way in the fintech revolution.

Legislation

Accelerated growth in the private lending industry has wide-ranging benefits.

What is the outlook for federal housing under the Trump administration?

by Robert ‘Bobby’ Montagne

by Brian Fritton

48

by Jeffrey N. Levin

52

Legal

56

Business Strategy

Five important ideas for financing your real estate transaction.

Manage & Lead

Implement qualifying criteria to help limit risk to your lending business.

by Nema Daghbandan, Esq.

A single employee’s lapse in ethical behavior can damage the entire workplace. by Chrissey Breault

by Mike Hanna

60

Investor Perspective

How an investor can capitalize from Fannie Mae’s rubber stamp. by Abhi Golhar

64

Manage & Lead

Anyone can claim to be a leader; the key is getting others to follow you. by Linda Hyde

MARCH/APRIL 2017 3


4 PRIVATE LENDER


PUBLISHER’S LETTER

A Living Commitment to Fair Housing R. MICHAEL WRENN CEO, Affinity Enterprise Group

EDDIE WILSON President, Affinity Enterprise Group

LINDA HYDE Executive Director, AAPL

LINDA WIENANDT Editor-in-Chief

HEATHER ELWING-DIXON Editorial Assistant

CHRISSEY BREAULT Director of Marketing and Member Services, AAPL

TIM DRAPE Senior Account Manager, AAPL

EMILY BOWERS Designer

CONTRIBUTORS Dennis Baranowski, Teresa Bitler, Nema Daghbandan, Brian Fritton, Abhi Golhar, Mike Hanna, Jeffrey N. Levin, Robert ‘Bobby’ Montagne, Andy Williams

COVER PHOTOGRAPHY Rachel Varla of Varla Entertainment Private Lender is published bi-monthly by the American Association of Private Lenders (AAPL). AAPL is not responsible for opinions or information presented as fact by authors or advertisers.

SUBSCRIPTIONS Visit www.facebook.com/aaplonline or email PrivateLender@aaplonline.com.

BACK ISSUES

Each April we come together as a community and as a nation to celebrate the anniversary of the signing of the Fair Housing Act. The Act, passed by Congress shortly after the assassination of Dr. Martin Luther King Jr. in 1968, was developed to eliminate housing discrimination and to create equal opportunity within every community. What does this mean to a lender? It means the opportunity to impact a community in a positive light. “A ZIP Code Should Not Determine a Child’s Future” (A public service message from the U.S. Department of Housing and Urban Development in partnership with the National Fair Housing Alliance.) This is a very strong message, standing behind the idea that everyone deserves a fair chance to succeed in life. That includes access to the best schools, quality jobs, affordable housing and equal housing opportunity regardless of one’s race, gender, sexual orientation, religion, national origin, disability or family status. As pioneers in the lending industry, we must make sure everyone is and stays compliant with the requirements of the Act—ensuring all persons can achieve their goals and dreams. Our commitment to fair housing is a living commitment, one that reflects the needs of America today and prepares us for a future of true integration. ■ (for printing)

(for spot color, silkscreen, or embroidery)

(for any black and white application)

LINDA HYDE

Executive Director, American Association of Private Lenders

Visit www.issuu.com/aapl, email PrivateLender@aaplonline.com, or call 913-888-1250. For article reprints or permission to use Private Lender content including text, photos, illustrations, logos, and video: E-mail PrivateLender@aaplonline.com or call 913-8881250. Use of Private Lender content without the express permission of the American Association of Private Lenders is prohibited. www.aaplonline.com Copyright © 2017 American Association of Private Lenders. All rights reserved.

MARCH/APRIL 2017 5


Private Money Lending Software Powerful, Flexible, and Easy to Use Used by most AAPL members Dodd-Frank and RESPA compliant Service multi-lender loans or pools with ease Automate budget and draw process for rehab loans Handle ARM, Construction, and Commercial loans Built in Trust Accounting Enhanced reporting and forecasting Online investor access 24/7 Increase productivity and accuracy

800 . 833 . 3343 | the mortgageoffice.com 6 PRIVATE LENDER


WHAT’S CURRENT LENDIT AWARD WINNERS NAMED

■T  op Fintech Equity Investor

Congratulations to American Association of Private Lenders member PeerStreet and all the other winners of the inaugural LendIt Industry Awards. PeerStreet was named Emerging Real Estate Platform at the March 7, 2017, awards ceremony culminating the sold-out—and largest ever—LendIt USA Conference in New York City.

■M  ost Innovative Bank

QED Investors Cross River

■T  op Service Provider

First Associates

■B  est Journalist Coverage

George Popescu, Editor in Chief, Lending Times

BREW JOHNSON AND BRETT CROSBY, PeerStreet Co-Founders

■B  est in Show

Deloitte

Source: www.lendit.com/usa/2017/awards

ABS PARTNERS WITH PAYMENT DATA SYSTEMS

Here is the complete list of winners: ■E  xecutive of the Year Applied Business Software Inc. (ABS), developer of The Scott Sanborn, president & CEO, Lending Club Mortgage Office® a leading loan servicing software solution, ■ I nnovator of the Year is partnering with Payment Data Systems (NASDAQ:PYDS), Lemonade a leading integrated electronic payments solutions provider, ■ Fintech Woman of the Year to offer enhanced functionality for processing electronic Jilliene Helman, CEO, RealtyMogul payments via its ACH module, as well as online payment ■ Top Consumer Lending Platform processing by check or credit/debit card. ZOPA Users of The Mortgage Office have a powerful collection ■ Emerging Consumer Lending Platform tool enabling them to effortlessly process electronic Flexiti Financial payments from borrowers, either by phone or 24/7 via ■T  op Small Business Lending Platform ABS’s subscription based web portal. With an easy signup Funding Circle process, competitive fees, real time verification, and world■ Emerging Small Business Lending Platform class security, The Mortgage Office® users continue to enjoy ApplePie Capital cutting edge software. Jerry Delgado, President and Co■T  op Real Estate Platform Founder of ABS said, “We are excited about this partnership LendingHome with Payment Data Systems as it falls directly under our goal ■E  merging Real Estate Platform of providing our clients with the most user-friendly, statePeerStreet of-the-art loan servicing software solution in the industry.” ■ Top Fund Manager Louis Hoch, President and CEO of Payment Data Systems Prime Meridian Capital Management added, “This partnership takes us into the new vertical of ■ I nternational Innovator of the Year consumer mortgage loan servicing software and further Trulioo, The Identity Bureau diversifies our customer base.” ■T  op Law Firm Web: themortgageoffice.com Chapman Cutler LLP Phone: 800-833-3343 ■T  op Accounting Firm Source: Applied Business Software, Inc. Deloitte MARCH/APRIL 2017 7


Sell your loans to PeerStreet quickly and efficiently PeerStreet provides unprecedented liquidity to the private lending industry. Our team is flexible, easy to work with and we can purchase loans at a low cost.

PeerStreet can be your capital and technology partner Here are just some of the benefits of working with PeerStreet: • Free up capital so you can originate more loans • Reduce your overall cost of capital • Gain access to a diversified investor base without the hassle • Benefit from access to PeerStreet’s diversified investor base • Maintain borrower relationships • Gain a partner, not a competitor

This notice is issued with and forms an integral part of information supplied in the form of a printed document (“Information”) and should be particularly noted in connection with that Information. This document has been prepared by Peer Street, Inc. (“PeerStreet”) for informational purposes only and without regard to the particular needs of any specific recipient. All Information is indicative only and may be amended, superseded or replaced by subsequent summaries and should not be considered as any advice whatsoever, including without limitation, investment, legal, business, tax or other advice by PeerStreet. Any such advice should be sought from an appropriately qualified and/or authorized professional. PeerStreet does not guarantee the accuracy or completeness of the Information which is stated to have been obtained from or is based upon trade and statistical services or other third party sources. All opinions and estimates are given as of the date hereof and are subject to change without notice. The Information is not intended to predict actual results and no assurances are given with respect thereto. The Information is not an invitation, offer or inducement to acquire or dispose of, or deal in, any interest in security, or to engage in any investment activity. Strategies or investments of the type described herein involve risk and the value of such strategies or investments may be volatile. Such risks include, without limitation, risk of adverse or unanticipated market developments, risk of counterparty or issuer default, risk of adverse events involving any

PeerStreet’s Lender Platform

Please contact us to learn more about PeerStreet: Lender Onboarding Team lenders@peerstreet.com

(844) 733-7787 x707

underlying reference obligation or entity and risk of illiquidity. This brief statement does not disclose all the risks and other significant aspects in connection with transactions of the type described herein.

8 PRIVATE LENDER

www.peerstreet.com/privatelenders


WHAT’S CURRENT FINANCE OF AMERICA LAUNCHES COMMERCIAL BUSINESS UNIT FOR REAL ESTATE INVESTORS Finance of America, a diversified national lender, has launched Finance of America Commercial, a new business unit designed to serve real estate investors. The business unit was established following Finance of America Holdings’ investment in B2R Finance and B2R’s simultaneous acquisition of certain assets from private money lender Jordan Capital Finance. Under the terms of the transactions, B2R Finance will operate under a new name,

is clear, and we believe that Finance of America Commercial will continue to be a leader in the space,” said Mark Filler, president, Finance of America Commercial. “I am excited to be leading this business and am very much looking forward to expanding our distribution channels, continuing to improve upon our products and to providing an excellent experience for our borrowers.” The transactions closed in mid-February and terms were not disclosed. Source: www.financeofamerica.com

PATCH OF LAND ADDS VETERAN EXECUTIVES TO MANAGEMENT TEAM

Finance of America Commercial LLC, and joins Finance of America’s leading portfolio of brands. Jordan Capital Finance CEO Mark Filler will serve as

Leading online real estate lending marketplace Patch of Land has rounded out its management team, adding Chief

president of the new business unit. Jordan Capital SVP

Financial Officer Min Lee and Chief Investment Product

Ben Fertig and B2R SVPs Joe Hullinger and Matt Soto will

Officer Matthew Zall, along with previously announced Chief

continue to lead sales efforts and oversee operations for

Marketing Officer Robert Greenberg.

the organization. “The addition of commercial loans to our existing suite of

Lee joins the company from Credit Suisse, where he was a director in the Real Estate, Gaming and Lodging team responsible

products is a natural progression for us and we continue to

for the execution of advisory and financing transactions. Lee

execute against our vision of becoming a leading diversified

assisted clients with over 25 financing and M&A advisory

national lender with the launch of this new business unit,”

transactions, which have raised in excess of $15 billion of debt

said Brian Libman, executive chairman, Finance of America

and equity financings for public and private companies. Lee’s

Holdings LLC. “The launch of Finance of America Commercial

expertise in financing strategies will allow the company to grow

enables us to reach new borrowers and will help us continue to

and manage its credit lines and will add

strengthen awareness of the Finance of America brand.”

to the company’s strategic planning by

Finance of America Commercial will continue to serve borrowers from both Charlotte, North Carolina, and Chicago, Illinois, as well as from regional offices throughout the country.

applying sophisticated statistical and predictive processes. Zall brings to Patch of Land more than

In addition to maintaining direct relationships with real estate

12 years of real estate and mortgage

investors, Finance of America Commercial will expand its

experience, as well as expertise in

focus on independent mortgage brokers and will also leverage

financing and product development. He

opportunities to work with mortgage advisers within the

pioneered three of the industry’s first-ever

Finance of America family of companies.

multi-borrower single-family rental securitizations, helping

“With nearly 16 million rental units in the United

MIN LEE, Chief Financial Officer

build Blackstone Group subsidiary B2R Finance (now known

States and residential purchase-rehab-resale transactions

as Finance of America Holdings, LLC) from start-up to a

reaching new highs, the real estate investment opportunity

multibillion-dollar lender in only a few years. Prior to joining

MARCH/APRIL 2017 9


10 PRIVATE LENDER


WHAT’S CURRENT B2R, he was a commercial real estate (CRE) trader at J.P. Morgan and Bear Stearns. He joins Patch of Land as the firm prepares to expand into the single-family rental market with longer term, permanent financing products. With the addition of Lee, Zall and Greenberg, a 25-year marketing and advertising veteran who led marketing and lead generation at B2R Finance, Patch of Land founders

DISTRESSED PROPERTY INVESTMENT FORUM April 6

South Windsor, CT

RCN Capital’s Distressed Property Investment Forum will bring together residential and small-balance commercial property investors, REO experts and real estate professionals for an evening of networking and education. Web: http://distressedpropertyinvestmentforum.ezevent.com/ Phone: 860-432-5858

Jason Fritton and Brian Fritton have assembled a veteran management team with deep experience in growing lending MATTHEW ZALL, Chief Investment Product Manager

and investment businesses. Other 2016 executive team hires include CEO Paul Deitch, who joined from Oaktree Capital Management, where he scaled

the company’s technology, operations and investor relations functions to empower the firm’s growth from $50 billion to $100 billion in assets under management; SVP of Operations and Underwriting Gina Donatoni,

ACTIVATE 2017 April 23-25

Newport Beach, CA

At Innovate, you learned the latest cutting-edge ideas. Now it’s time to take those ideas and apply them. Like a chemist who takes a dormant chemical and activates it, so too will we take Innovate and activate it to help you continue to grow your private lending business. Web: http://geracicon.com/activate/ Phone: 949-298-8050

a 30-year veteran of several billiondollar mortgage companies, who most recently scaled a team at PennyMac that

THINK REALTY NATIONAL CONFERENCE & EXPO

processed 800 mortgages per month;

April 29

and SVP of Loan Production Ben Shaevitz, whose sales team leadership helped grow PennyMac into the eighthlargest mortgage loan originator and servicer in the United States.

ROBERT GREENBERG, Chief Marketing Officer

Source: www.patchofland.com

UPCOMING EVENTS IMN’S 4TH ANNUAL REAL ESTATE PRIVATE EQUITY FORUM April 4-5

Miami, FL

IMN is pleased to announce the 4th Annual Real Estate Private Equity Forum on Land, Homebuilding & Condo Development. Join IMN to discuss all of the critical issues in the real estate private equity sector. Web: https://www.imn.org/real-estate/conference/LandHomebuilding-East-17/ Phone: 212-901-0506

Dallas, TX

This is THE event for real estate investors, landlords, property managers, wholesalers, note buyers, private lenders, rehabbers and other real estate entrepreneurs. Tap into the knowledge and experience of the best and brightest enterprising minds in the industry and leverage their lessons to improve your competitive advantage. Web: www.thinkrealty.com/events/dallas Phone: 816-398-4053

AAPL CERTIFIED FUND MANAGER COURSE May 17

Atlanta, GA

The American Association of Private Lenders (AAPL) Fund Manager designation bridges industry practices,investment theory along with ethical and professional standards to provide investment analysis and portfolio management skills. The intensive four-stage course, designed by industry veterans, will help you answer the questions, “Is a mortgage fund my next growth opportunity?” Web: www.aaplonline.com/events MARCH/APRIL 2017 11


SPECIAL FOCUS: FAIR HOUSING & LENDING

A Fair Housing Primer Private lenders need to be aware of how the Fair Housing Act can impact their success. by Teresa Bitler

T

he Fair Housing Act was designed to protect against discrimination and

unfair practices in the process of purchasing

opportunities. Discrimination may be overt or

subtle and can occur at any stage of the lending

process, from the marketing of loan products to

residential real estate, including applying for

the servicing of the loan.

lenders, it’s essential to understand how the

er probably would never intentionally refuse

tunity Act (ECOA) protect consumers, how you

skin or their religion, but the discrimination

the consequences could be.

seemingly innocent as providing additional

Protected Classes

to an applicant in a class protected by the Fair

and acquiring a reasonable loan. For private

This is where it can get tricky. A private lend-

Fair Housing Act and the Equal Credit Oppor-

to make a loan based on the color of someone’s

can inadvertently violate these acts and what

doesn’t have to be intentional and can be as

Enacted as part of the Civil Rights Act of

1968, the Fair Housing Act prohibits discrimi-

instruction to one applicant that isn’t provided Housing Act and ECOA.

Other potential violations include steering

nation in residential real estate-related trans-

an applicant toward an inferior (or subprime)

religion, sex, familial status (such as pregnant

evaluate collateral; imposing different terms

of 18) and handicap.

points, fees and duration; and providing inferi-

actions based on race, color, national origin,

loan product; using different standards to

women or families with children under the age

and conditions to loans such as interest rates,

The ECOA builds on the Fair Housing Act,

prohibiting discrimination in credit trans-

or servicing.

actions based on race, color, national origin,

Disparate Treatment

applicant is capable and old enough to enter

a violation of the Fair Housing Act and the

from a public assistance program and appli-

treatment, comparative evidence of disparate

religion, sex, marital status, age (as long as the

When determining whether there has been

into a contract), applicant’s receipt of income

ECOA, the courts use three tests: disparate

cant’s exercise in good faith of any right under

treatment and evidence of disparate impact.

the Consumer Credit Protection Act.

Disparate treatment occurs when a lender

The discrimination doesn’t even have to be

acted upon to be a violation of the Fair Housing Act and ECOA. A private lender can’t tell an

applicant, “I don’t like to make loans to (Mus-

Both the Fair Housing Act and the ECOA

makes a lending decision based on one or more

everyone—including United States citizens,

age. For example, a lender can’t offer $10,000 in

Even if you do lend money to the categorized

documented residents—has the same lending

age and $15,000 in credit to applicants over 30.

than you would any other customer in the way

apply to private lending and ensure that

of the prohibited factors, such as religion or

lims/Baptists/etc.), but the law says I have to.”

registered aliens (green card holders) and un-

credit to applicants between 21 and 30 years of

applicant, treating him or her no differently

12 PRIVATE LENDER


THE ACTS Fair Housing Act

Sec. 805. Discrimination in Residential Real Estate-Related Transactions (a)  In General. — It shall be unlawful for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction because of race, color, religion, sex, handicap, familial status, or national origin. (b) D  efinition. — As used in this section, the term “residential real estate-related transaction” means any of the following:

you offer guidance and assistance throughout the process, you’ve violated the fair housing laws simply by making the comment.

Comparative Evidence You don’t have to intend to treat an applicant

any different than anyone else to violate the

Fair Housing Act and ECOA. The simple fact

that an applicant was treated differently can be evidence of discrimination.

Comparative evidence of disparate treatment

usually occurs when an applicant is neither

clearly well-qualified nor clearly unqualified

for a loan. Teetering on the brink, that person’s

application could go either way, and if you treat

(1) T  he making or purchasing of loans or providing other financial assistance— (A) F  or purchasing, constructing, improving, repairing, or maintaining a dwelling; or (B) S  ecured by residential real estate. (2) T  he selling, brokering, or appraising of residential real property.

him or her any differently than anyone else,

MARCH/APRIL 2017 13


SPECIAL FOCUS: FAIR HOUSING & LENDING

even unintentionally and without prejudice,

THE ACTS Equal Credit Opportunity Act Section 1691. Scope of prohibition (a)  It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction— (1) o  n the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) b  ecause all or part of the applicant’s income derives from any public assistance program; or (3) b  ecause the applicant has in good faith exercised any right under this chapter.

14 PRIVATE LENDER

you have violated fair lending laws.

For example, assume two applicants fail

applicant, who happens to be a member of a protected class, the second applicant could

likely prove comparative evidence of dispa-

to clearly qualify because of negative credit

rate treatment, regardless of your intentions

applicant and fail to do so for the second

cant encouragement through the process

issues. If you propose solutions to the first

or motivations. Even giving the first appli-


and not giving the second applicant the same

you need to do so for all applicants. In fact, it’s

Disparate impact

As a private lender, you’re not obligated to

detailing what assistance you will (and won’t)

have a fair and neutral policy in place, you

don’t clearly qualify for a loan. Have an attor-

through disparate impact. This occurs when

encouragement is a violation.

provide extra assistance or propose solutions as issues come up during the process, but to the extent that you do so for one applicant,

a good idea to have a written policy in place provide and how you will handle cases that ney review your policy and stick to it.

Even if you treat all applicants equally and

can violate the Fair Housing Act and ECOA you treat all applicants the same, but your

practices disproportionately affect people in

a protected class. For example, a policy to not

extend loans for an amount less than $100,000

for single-family homes may disproportionate-

ly exclude minorities and other applicants who have lower incomes and lower home values than the rest of the applicant pool.

However, it’s not enough to prove a disparity

exists for a protected class to be found in vio-

lation of the Fair Housing Act and ECOA. The court will consider whether the disparity is

justified because of a “business necessity,” such as profitability. If you can show your business can’t be profitable making loans for less than

$100,000, for example, the court may allow you to continue the practice.

Or not. Demonstrating a business necessity

may not be enough to get you off the hook for a

violating fair housing laws if the court determines an alternative policy or practice could avoid the

adverse effects to your business while at the same time have a less discriminatory effect.

Consequences Applicants who suspect they may not have

been treated fairly are encouraged by the De-

partment of Housing and Urban to file a claim with HUD or with a fair housing agency. That agency will refer the case to the Office of Fair Housing and Equal Opportunity (FHEO) for

investigation. If the FHEO finds discrimination has occurred, you’ll have the opportunity to

work with the other party to come to a voluntary resolution. In cases where a settlement can’t be reached, the case will go to court.

Either way, the penalties can be quite steep. MARCH/APRIL 2017 15


SPECIAL FOCUS: FAIR HOUSING & LENDING

Target Redlining

In recent years, the Consumer Financial Protection Bureau has been focusing on the unfair lending practices of finance companies and credit card lenders. For 2017, however, the bureau announced it is redirecting its resources to investing, mortgage and student loan servicing, small business lending, and redlining. Redlining is the practice of providing unequal access to credit or unequal credit terms based on where the applicant lives or the location of the home for which the mortgage is sought. The term comes from a time when lenders would draw a red line around neighborhoods they wanted to avoid, typically ones with a high concentration of minorities, due to a perceived higher risk. To avoid becoming the target of the bureau’s new focus, make sure you are lending throughout the entire market, including all neighborhoods.

Bank of America, which purchased Country-

wide Home Loans in 2008, had to pay $335 mil-

lion for discriminatory subprime loans Countrywide made to Hispanics and African-Americans in the run-up to the housing crisis.

As a private lender, you probably won’t face

a $335 million penalty, but the amount awarded against you for fair lending violations could severely cripple your business. ■ ABOUT THE AUTHOR Teresa Bitler is an Arizona-based freelance contributor to Private Lender magazine. Contact her at teresa@teresabitler.com

16 PRIVATE LENDER

HELPFUL RESOURCES: Department of Justice (Fair Housing Act) Section 805 https://www.justice.gov/crt/fair-housing-act-2 Department of Justice (Equal Credit Opportunity Act) https://www.justice.gov/crt/ equal-credit-opportunity-act-3 U.S. Department of Housing and Urban Development https://portal.hud.gov/hudportal/ HUD?src=/program_offices/fair_housing_equal_opp/FHLaws https://portal.hud.gov/hudportal/ HUD?src=/program_offices/fair_housing_equal_opp/FHLaws/yourrights

https://www.fdic.gov/regulations/ compliance/manual/4/IV-1.1.pdf https://www.occ.treas.gov/topics/ consumer-protection/fair-lending/ index-fair-lending.html https://www.fdic.gov/regulations/ compliance/manual/4/IV-1.1.pdf https://portal.hud.gov/hudportal/ documents/huddoc?id=Fair_Lending_Guide.pdf https://www.consumerfinance.gov/ about-us/blog/fair-lending-priorities-new-year/

http://www.civilrights.org/fairhousing/laws/

http://www.adamsandreese.com/ en-US/cfpb-outlines-new-fair-lending-enforcement-priorities-for-2017-01-13-2017/

https://www.occ.treas.gov/topics/ consumer-protection/fair-lending/ index-fair-lending.html

https://www.propublica.org/article/ disparate-impact-and-fair-housingseven-cases-you-should-know


REI Fund

ALPM pursues above-market returns for its investors/ clients by primarily investing in the historically strong and steady Texas real estate market.

A List Partners Management, LLC is a powerhouse team of real estate knowledge and experience providing high-yield alternatives through our managed funds for investors who want more for their money than the low interest rates offered by banks. Additionally, ALPM offers high yield opportunities for Non-US Citizens who are seeking investment options in the USA.

Investors receive semi-annual distributions based upon the net profitability of the fund, meaning that some periods may have small distributions and some periods may have larger distributions. The target of ALPM is to manage real estate transactions that yield greater than 12% annually. Investors may choose to receive a check for their semi-annual distributions or they may choose to reinvest their distributWion to build wealth by compounding their earned distribution. Compare our return rates to the rates banks offer on a five-year Certificates of Deposit, and see why ALPM offers a clear choice for the thoughtful investor.

Regional Center Fund

Each EB-5 project will be its own security filed with the SEC within A List Partners Regional Center. Whereas most Regional Centers offer only a tiny return for EB-5 investors, A List offers a 3% annualized interest rate to EB-5 investors, AND in some projects investors share in a small equity percentage of the project. For non-EB-5 investors investing through the Portfolio Interest Tax Exemption Program, the annualized returns are 8% of greater, AND in some projects investors will receive a bonus in addition to the annualized interest rate on the investment.

A List Partners Technology

Converting Cannabis Industry Legacy Money into Viable Investments

Frost Bank Tower 401 Congress Ave. Suite 1540 Austin, TX 78701 Phone: 512.687.6263

www.alistpartners.com

A List Partners Mentorship Program Turnkey Option to Set Up Your First Capital Fund While being Mentored by Experienced and Successful Fund Managers

MARCH/APRIL 2017 17


SPECIAL FOCUS: FAIR HOUSING & LENDING

18 PRIVATE LENDER


Deeper Meaning Today’s concept of fair housing goes beyond Title VIII of the Civil Rights Act of 1968. by Andy Williams

T

he Fair Housing Act (Title VIII of the Civil Rights Act of 1968) originally

introduced meaningful federal enforcement

of laws guaranteeing that no person could be denied the ability to buy or rent a dwelling

because of race, color, religion, sex, familial status or national origin.

Now the concept of fair housing has

even broader reach, thanks in large part

to institutional investors who entered the market at a time of distress and lack of capital available to smaller investment

firms. These institutions’ investing over $25 million a week to purchase, renovate and

reposition these distressed assets through

a buy-and-hold strategy was revolutionary

for the fair housing industry. Looking back at why Invitation Homes, Colony Homes, Waypoint Homes and American Homes

for Rent entered this space and aggregated thousands of units, exiting with IPOs and

successful securitizations, we see how their existence created a fairer housing market –

specifically for smaller, “mom and pop” real estate investing businesses.

Today, housing is a big business – and

business is good. As professional real estate investors, my team and I go into multiple

markets to identify opportunities, analyze MARCH/APRIL 2017 19


SPECIAL FOCUS: FAIR HOUSING & LENDING

market conditions and use our investment

preservation for the Wall Street funds.

to provide the operators access to growth

institutional investors having pivoted from

about the federal government applying

confidence, properly capitalized to create

and medium-sized investors who remain in

the broader concept of fairness. As private

capital to turn a profit – simply put. With

aggregation to real estate finance, the small this space have access to capital, systems,

This conversation on Fair Housing is not

rules and regulations, but instead it is about lenders in this Association, we have a fidu-

processes and people that enable them to

ciary duty to the investors – the women and

business while maintaining yield and capital

markets – to continue to innovate ourselves

grow, develop and scale their real estate

20 PRIVATE LENDER

men with boots on the ground in their local

capital so they can enter the market with

the change that we all want to see. Whether we are in Fort Worth, Texas; San Francisco,

California; the inner city of LA; Jacksonville,

Florida; or St. Louis, Missouri, there’s opportunity for transacting.

It’s now a fact that the presently active


Wall Street firms have gained an appetite

societal change and empowerment along

to be traded on the securitization market.

finance tactics, collaborating with Fannie

American Association of Private Lenders, we

And we are creating a fair housing market

for consistent returns through debt leverage Mae, Goldman Sachs and Wells Fargo. What

with positive returns. As members of the

stand with a greater purpose in today’s mar-

is unique and fair about this approach is

ket: to make capital more accessible, through

significantly for the actual operators on

yond an operator’s balance sheet to empower

that it has driven the cost of capital down the ground and provided more options for

the local private and regional lenders. The

recent IPO of Blackstone’s Invitation Homes

the mom and pop operator to grow into an

redevelopment and revitalization, while making a solid return. That’s fair. ■

established business.

We all are creating a better, fair market,

of Jordan Capitals assets shows that this is

managing a pool of investor capital targeting

bringing fair and balanced opportunity to all parties involved in this asset class.

It is extremely appropriate now to capi-

talize on the housing market and also create

distressed, discounted properties below re-

placement cost, giving them access to capital

whether you are a private investor with

a long play – not a short one – in this space,

to empower the smaller operators to buy

manageable rates, extending the leverage be-

and Blackstone’s B2R merger with Finance of America and simultaneous acquisition

We are capitalizing to create change.

$50,000 to $5 million to place; a small team consistent returns by providing capital to

an operator in this space; or an institutional investor leveraging warehouse lines and

creating spreads off a LIBOR to create mar-

ket-ready opportunities and debt instruments

WORKING FOR INVESTORS. Safeguarding YOUR Financial Interests.

to build a business that adds value and forces

ABOUT THE AUTHOR Andy Williams is founder of Recon Realty, whose mission is to provide a platform for post-9/11 service personnel to use the real estate industry as a viable option for transition to civilian life. As a veteran-focused residential redevelopment firm, Recon Realty is deeply rooted in tactics and operational strategy, specializing in analyzing markets, identifying opportunities and acquiring real estate in growth markets.

Looking Out for Private Lenders REIGuard leads the industry in protecting private lenders like you. • Receive notification if/when your borrower requests to terminate coverage • Coverage will not cancel without your acknowledgement • Coverage available in all 50 states

Visit our website or call to request a proposal today!

REIGuard.com / 888-741-8454

REIGuard is the brand for the residential real estate insurance Program offered by National Real Estate Insurance Group, LLC and serviced by Affinity Group Management, Inc.

MARCH/APRIL 2017 21


LE

GHT I L E M I L NDER

:

gs— n i h t y n a d at m e h s i l p m s acco a few— i i e c m a r a e n G o t Christina , media, fashion, ing just halfway. yth law n a o d t ’ n oes and she d

22 PRIVATE LENDER


MARCH/APRIL 2017 23


LENDER LIMELIGHT

WITH CHRISTINA GERACI

Private Lender: Let’s start with some

PL: What is your position at Geraci? What

background on the company you work for:

does your position entail? How long have

When was the company founded, what

you been in your role? Have you ever held

services does Geraci offer, where are your

any other position?

offices located, special milestones, mission statement etc.

CG: As a founding partner, I did everything in the beginning, even staining desks and

Christina Geraci: My partner and I started the

setting up computers. Within the first year,

office in Irvine. I had to moonlight at my prior

attorney. The following year, we added three

enough money) to survive. By the end of De-

members. By our fourth year, we were up to

law firm in July 2007 out of a 167-square foot

we had added a full-time paralegal and third

law firm until we were busy enough (i.e. making

more attorneys and two administrative staff

cember 2007, I had tendered my resignation, and

10 attorneys and a full staff.

began working full-time at Geraci Law.

Our firm has naturally progressed and

Growth is wonderful and painful. I learned

and accepted quickly that I needed help. I

blossomed into a full-service one-stop

was good at some things, great at some things

beautiful Southern Orange County in sunny

and I split up the responsibilities of the firm.

successfully launched Geraci Consulting,

and Litigation Chair. I remained in those

line and magazine. I know it is anything but

of Litigation Chair to a very seasoned trial

sulting and media firm, but we are not your

My current position is managing share-

shop for private money lenders, located in

and terrible at others. My partner, Anthony,

California in the city of Irvine. Last year we

I was responsible for being the CFO, COO

and Geraci Media which hosts a conference

roles until 2016 when I handed over the role

typical for a law firm to bloom into a con-

attorney, Paul Sievers.

typical firm. In fact, we have been decreed

holder in charge of operations, which still

the “Un-Firm” by our people and clients.

encompasses the roles of CFO and COO for

value to our clients, which takes a lot of

on a much stronger overall leadership role.

company from ground zero, and successful-

resource for them.

Because we are in the same boat, we under-

have whatever they need to succeed.

business ones as well.

PL: Why did you choose your career path

We actively search out ways to provide

“thinking outside the box.” Starting a

ly running and growing it is challenging.

the Geraci entities, but also allows me to take We have a strong team, and I remain an open My only real job is to ensure my people

stand not only our clients’ legal issues, but We firmly believe that we exist to provide

peace of mind to our clients, whether that is

path you choose. and industry?

by preparing a securities offering, negotiating

CG: Oh boy, this is a tough one, because it is

suit, helping them raise capital, or educating

into law by my family; we have several attor-

a contract or deal, defending them in a law-

so personal. I guess you can say, I was pushed

them on the current trends in their business.

neys and a Judge in the family. I was raised to

they can turn to when they need assistance.

will empower you in any career path or life

We are a partner to our clients – someone

24 PRIVATE LENDER

believe that a law degree is invaluable and it

“If you know how to interpret the law you

won’t be taken advantage of, and you will always have a job.” – my mom, my dad, my grandma,

my grandpa, my aunts, my uncles, my cousins (you get the point) would say that all the time.

My dad was diagnosed with cancer when

he was very young. He knew he was not

going to be around when I was older, and

wanted to make sure I would be financial-


ly taken care of. He believed a law school

degree was that guarantee I promised him

before he passed away that I would go to law school and kept my promise.

PL: How does Geraci fit into the hard money or private lending world? CG: We are the hub of the private lending

world. Each spoke we build adds value to the

private lender. Everything from Originate

PL: Where do you see Geraci fitting into

Report magazine, which will be sent to over

the private lending industry in the future?

service companies, to Geraci Consulting,

CG: We will continue to offer cutting edge

clients. We are their partner in business,

lending conversation by providing our clients

strive to find solutions for our clients, and of-

ties for them to continue their success. Gera-

the solution in hand, we build it.

As attorneys and business oriented people

40,000 loan originators, private lenders and which finds investors for our mortgage fund and provide peace of mind to our clients. We ten provide several options. If we don’t have

education and dominate the private money

what they need as well as growth opportuni-

ci Consulting has taken on a life of its own.

MARCH/APRIL 2017 25


LENDER LIMELIGHT

WITH CHRISTINA GERACI

we often times found ourselves providing ad-

CG: I would say it is progressing slowly in

wanted to offer valuable services our clients

sexism is still accepted in our industry, espe-

al careers and contemplating following in

a positive direction. Unfortunately, blatant

your footsteps?

needed and Geraci Consulting was the final

cially by the veterans. Although, the younger

CG: People will assume you aren’t smart

company dedicated to teaching and advising

a bit, we still have a way to go. As this new

ed enough because you are a young woman.

in the industry taking on stronger leadership

degrading. But here’s another dose of reality:

vice that was outside of the legal realm. We

generation seems to have dulled sexism quite

enough, good enough, tough enough, educat-

generation takes over we are seeing women

Yes, it’s insulting, aggravatingly sexist and

roles. It is a great thing to see happening.

it’s going to happen again and again.

changed for women in finance? Is progress

PL: What advice would you give to other fe-

racism and sexism I encountered in my early

coming fast enough, in your opinion?

males just starting out in their profession-

piece of the puzzle. Now we have a whole

novice lenders to seasoned lenders on how to grow their business.

PL: How has the professional landscape

People could never imagine the amount of

years by male attorneys and, yes, even judges.

On A More Personal Note...

GETTING TO KNOW CHRISTINA GERACI

Gym or outdoors? Where do you seek solace when needed? Hot Yoga and the beach. So, both. How important do you think humor is in the workplace? Crucial. Without humor, it would be a dark world. At Geraci, we laugh together all day long. What are the essential tools of the trade for you? Internet. Smartphone. Wine. What are your favorite ways to reduce (or bypass) stress? Traveling and going on an adventure. I love exploring places all over the world. I am happiest when learning about new cultures and experiencing new things. We know how important family is for you, can you tell us about your kids?

26 PRIVATE LENDER

Raising three children and running my own business is challenging, but rewarding. They define me, guide me and will always come first. I have an 8-year-old boy who loves baseball, is in Cub Scouts and serve as liaison for his baseball league and his team mom! My 6-year-old daughter loves ballet and Girl Scouts, we share “girl time” with mani/pedi days. I love watching her girly side of her. My 15-month-old boy never stops! He is so happy and is a true pleasure to be around. Do you have a favorite quote that motivates you? “Know your ‘why’ “—why you get out of bed in the morning and why you do what you do. Practice self-awareness, and know it is not a soft science but disciplined practice that is necessary for you to be successful and achieve true freedom and true happiness.

Batgirl or Wonder Woman? If not either of those, do you have a female cartoon role model? Belle from “Beauty and the Beast.”. Favorite actor/actress? Why is that person your favorite? Gary Oldman. He is extremely talented and can play almost any role perfectly. If you changed your profession what would it be and why? I would be a professional opera singer. I am a mezzo-soprano. If I changed careers, I would do that instead. I love to sing. Finish this sentence, “Go forth and_____!” It can be anything! INSPIRE! What’s next for Christina Geraci? I can’t wait to find out! I have been having a blast so far.


I can’t tell you how many times I walked

a week. This is a great side project and brings

court reporter or attorney’s secretary. Once

I get to go to Fashion Week and rub elbows

into a deposition and was asked if I was the

in a nice little “passive” income stream. Plus,

Learning and growing is a lifelong quest. Never stop.

Surround yourself with an inner circle

with very interesting people.

that complements you. Where you are weak,

get me coffee—black, and let Ms. Palmer (my

through a friend of his. He knew I would be

most successful people are those who have

ery time I would say with a side smile “No. I’m

girly things. I love the whole eye-lash exten-

opposing counsel looked at me as I entered

the room, and he said “Oh good. Dear can you maiden name) know I’m here.” Each and ev-

My husband first heard of this opportunity

interested; I love fashion and makeup and

lead counsel Christina Palmer/Geraci” all the

sion concept and the financials made sense.

ber my name, alright, when we are done.”

Amazing Lash, I was hooked. She is a true

while thinking “Oh, you are going to rememEach time I endured prejudice it made

me stronger, it made me work harder, and encouraged me to win. I would not allow

anyone to tell me I could not do something

or was incapable. It only fueled my fire and

PL: Women seem to keep shattering the

through beauty and cosmetics. I knew I want-

those women? If so, why?

PL: What do you do to keep current in your

CG: I am an entrepreneur by nature. I’m

was and said, “Screw you. You have no power

as well as a plethora of legal periodicals. I

My advice - don’t sweat it. Go out, and do great

willing to give you a shot, recognize you can do.

glass ceiling. Do you feel you are one of

ed our own studio.

CG: I read Private Lender, of course! In all

things. The great things about those who are

with a team where every member has some-

artist and has such a passion for creating art

I did not “overcome” racism or sexism. I

over my actions.”

accident but a conscious decision to work thing unique to bring to the table.

career and on the lending side?

looked it in the face, recognized it for what it

a well-rounded, 360-degree view; it is not by

But, when I met Jessica Lee, the founder of

drive, when I heard racist or sexist com-

ments. It helped mold me into who I am.

have team members who make up for it. The

honesty, I read the legislative updates daily keep apprised of current business trends to help me grow as a business owner. I keep

striving and learning. You have to keep growing or you will end up dying.

addicted to the thrill of leading an idea into

a reality. It’s like a puzzle in my mind. I never bought into the whole corporate ladder

thing, so, I can’t say I broke the glass ceiling because I never fully played in that arena.

PL: Who have been some of the most influential people in your life? Any particular mentors who have inspired you to what you are doing today?

PL: As a woman in this industry what

PL: What are your guiding principles?

would you like to see changed if anything? CG: I would like to see more women in leadership roles. So many women take lower-lev-

CG: Know yourself, improve yourself and complement yourself.

Know who you truly are. Take the neces-

CG: My mother. She has always been my

advocate and voice. She told me I could do anything and I believed her.

My husband. He is a true visionary, and

el positions once they start a family.

sary “ongoing” time to self-reflect. Under-

encourages me through all my crazy ideas

PL: Do you have any passion projects you

Constantly ask yourself why you make par-

it, and celebrates with me when I succeed.

are working on or dream of working on? CG: I recently started a Lash Studio. It is

Amazing Lash Studio Monarch Beach in Dana Point, California. We do semi-permanent eyelash extensions and host a line of cosmetics. Our studio has a gorgeous ocean view. I am

lucky enough to mentor there one or two days

stand what drives you, what motivates you.

ticular decisions and what you expect to see happen. It sounds easy – but it is anything

and side trips. He challenges me when I need

PL: How do you maintain a healthy work/

but. You have to be diligent and honest with

life balance?

But the key to true growth and leadership is

CG: Balance? What is that? I realized a long

you do.

You do your best and hope you don’t screw up your kids too much. ■

yourself. It is sometimes a painful reality.

knowing who you are and why you do what

Continually find ways to improve yourself.

time ago there is no such thing as balance.

MARCH/APRIL 2017 27


28 PRIVATE LENDER


LEGAL

Fighting Fraud How SBA lenders can avoid False Claims Act violations. by Dennis Baranowski, Esq.

T

he U.S. Small Business Administration (SBA) provides loan programs

Although the SBA does not directly lend

money, it assists small businesses’ develop-

money ends up in the right hands, but some lenders have begun talking about under-

available at most banks and commercial

ment through guaranteeing loans made to

handed tactics from the government.

guaranteed. Each year, the administration

As of 2015, the SBA held more than $118 bil-

fraud, it has stepped up enforcement efforts,

to be increasing that amount for 2016. This

tice and Housing and Urban Development,

lending that are U.S. government-backed and guarantees billions in loans and assists thou-

sands of U.S. small businesses with obtaining financing that may otherwise not be available to them from traditional outlets.

them through the private lending markets.

lion in its investment portfolio and appeared amount of exposure rightly demands diligent oversight to ensure fraud is reduced and

While the SBA continues to struggle with

in conjunction with the Department of Justo target and prosecute program violators. The SBA has always utilized site visits to

MARCH/APRIL 2017 29


LEGAL

determine if a borrower is legitimate, but it

and contracts through regulatory enforce-

litigation. While the FCA was intended to identify

Department of Justice (DOJ) and HUD to

it can also be used to enforce violations of proce-

was not until recently that it began using the

ment actions. The FCA is used by both the

and prosecute fraud against the U.S. government,

and prosecute what SBA feels is fraudulent

pursue and recover damages from organi-

dures with regard to loans the SBA guarantees or

or loan purchases as part of their business.

after lenders, Realtors or other entities or organi-

False Claim Act (FCA) to find, investigate activity on the part of the lender.

Navigating the False Claims Act (FCA) Liability

zations that rely on government guarantees The agencies often use the law to prosecute

violators either through DOJ lawsuits, or qui

purchases. The Act allows the government to go zations tied to SBA lending activity.

tam relator suits.

How FCA is Applied to Violations

false claims of loss against the United States

against lenders in the same fashion it was used

ular lenders on notice for violations, includ-

making a false claim to the government or

the 2008 economic crisis. Small business lenders

HUD. For SBA Preferred Lenders providing

The FCA was originally enacted after

the Civil War to thwart profiteers making

government. It currently applies to anyone presenting false information affecting a

government claim. More recently, the law

has been applied to government programs 30 PRIVATE LENDER

Under the SBA, the FCA can be utilized

to go after government-sponsored lenders after

must contend with ramifications that fall under

the purview of the FCA, and make adjustments to

ensure they do not fall into traps that risk possible

The FCA can place both preferred and reg-

ing lenders offering loans under the FHA and Section 7(a) and CDC/504 loans, the requirement for vetting the viability of the small

business borrower falls squarely at the feet


of the organization and principals. Lenders must ensure they follow

FCA action taken against the firm. Legal advice will be paramount in

checks to make sure they are dealing with a legitimately qualified SBA

irreversible damage resulting from an FCA claim or inquiry.

SBA guidelines, as well as perform their internal set of due diligence business. Even a failure to provide borrower information to the SBA can become a cause for an action.

Both government and private persons can bring suit against a lender

based on FCA violations. The DOJ often prosecutes lenders under the

FCA, but it is not unheard of for former employees or customers to file

suit using arguments from the Act. However, the primary area of concern for SBA lenders should remain with adhering to agency guidelines.

The SBA regulations change from time to time, and as such a lender

must consistently adjust internal procedures to ensure meeting those

changes. It is also the responsibility of the lender to report any changes in income, qualifying requirements, or company financial issues to the

SBA during the application process. Any failure to report these changes can be construed by the SBA as an FCA violation.

How Lenders Can Avoid FCA Investigations

implementing an internal investigation and plan of action to prevent The best way to avoid an FCA investigation is not to put your

company into a position that presents a reason for the SBA or DOJ to come calling. Implementing a robust compliance program, internal or third-party auditing system, and accurate record keeping and re-

porting is paramount to ensuring you continue to operate according to SBA guidelines and regulations. ■ ABOUT THE AUTHOR Dennis Baranowski, Esq., is senior associate at Geraci Law Firm. Baranowski has extensive experience in helping banks, credit unions, mortgage funds, private lenders, brokers, developers and loan servicers navigate through complex transactions, including negotiation of terms, transaction review and drafting of documents. He also has experience in default-related legal services including foreclosure, bankruptcy, and loss mitigation, as well as lender compliance. Baranowski believes in dedicated, constant communication and providing swift, custom, effective and efficient solutions to client problems. He understands that his role is not to stand in the way of a transaction, but to be a trusted guide in all lending matters.

An alleged violation of the FCA made by a government entity is a

dangerous situation that requires immediate legal guidance. However,

a t n a l t A

there are steps that lenders can take to mitigate exposure to FCA viola-

Join us

tions and prevent attracting unwarranted FCA scrutiny.

Compliance: The best way to avoid undue scrutiny stemming from alleged violations is not to expose yourself in the first place. Ensure

that your company has the proper internal procedures in place to prop-

erly research and qualify small business customers. Create and provide

in

a comprehensive employee training program that details warning signs of potential violations. Perform periodic internal audits to enforce

compliance and adherence to Agency requirements for SBA loans.

Is a Mortgage Fund Your Next Growth Opportunity?

Education: Ensure company executives are well schooled on FCA

May 17, 2017 | Buckhead Club

violations and how to avoid them. Enlist the help of counsel to provide oversight and guidance about how corporate activity, or inactivity, can

AAPL ‘s Certified Fund Manager course includes:

process, compliance program and reporting systems.

• • • •

Consultation: As mentioned previously, an FCA violation is a seri-

Registration includes a one-year individual membership to AAPL, CFM Course, lunch, and parking at the Buckhead Club for $799!

lead to an investigation. Hold regular board meetings to discuss possi-

ble areas of concern and evaluate the performance of the internal audit

ous problem that could result in fines, removal from government-sponsored loan programs or even loss of your lenders license. It is import-

ant to obtain competent legal counsel in response to any DOJ or private

Mortgage Pool Fundamentals - Vision & Execution How to Structure Capitalize & Administer a Mortgage Pool Fund Creation and Launching a Fund On-going Fund Administration

AAPLOnline.com or call 913-888-1250

MARCH/APRIL 2017 31


ALTERNATIVE ANGLE

32 PRIVATE LENDER


Leading the Way Alternative lenders at the forefront as fintech transforms the way Americans borrow and invest. by Brian Fritton

A

dvances in technology continue to

change the way individuals and busi-

nesses access capital, and alternative lenders have been at the forefront as financial

technology innovation transforms the way Americans borrow and invest.

Using slick and mobile responsive web-

sites, alternative lenders connect potential

borrowers to accessible online applications

and then seamlessly analyze their creditworthiness and risk factors via robust algorithmic technology.

Even traditional lenders are embracing

innovative financial technology as businesses realize that this is the direction the world is

headed. Who hasn’t heard of Rocket Mortgage

— Quicken Loans’ reinvention of the mortgage experience? They offer approval of an online

loan application in about eight minutes, roughly the time it takes the space shuttle to reach orbit. Introduced in November 2015, Rocket

Mortgage funded more than $5 billion in loan

volume in the first three quarters of 2016, making it a Top 30 mortgage lender.

Alternative lenders have re-imagined the en-

tire mortgage market, tapping powerful fintech

MARCH/APRIL 2017 33


ALTERNATIVE ANGLE

to find new and better ways to reach borrowers

the strong growth of alternative lenders.

tive lenders enables credit decisions and un-

signed specifically to meet their needs.

lenders as they compete with the nation’s

it may take a more traditional financial

ternative lenders has been on the rise for

may have greater name recognition and bigger

and investors with a variety of products deIt’s working. The marketplace for al-

several years. U.S. online lenders more than tripled their lending volume between 2014

and 2015, from $11.7 billion to more than $36 billion, according to an April 2016 study by

Speed is a key differentiator for alternative

well-known banks and mortgage lenders who footprints but are strapped with old, legacy

technology systems that can be a significant expense and time commitment to upgrade. This rapid approval process has been a

the University of Chicago’s Polsky Center for

core benefit that alternative lenders have

University of Cambridge’s Centre for Alter-

are submitted online and there’s no brick-

Entrepreneurship and Innovation and the native Finance.

In 2015, the United States was listed as the

world’s second largest online alternative fi-

nance market behind Mainland China, according to the report. The United States had the

world’s highest total online alternative finance market when viewed as volume per capita.

U.S. marketplace lenders are poised to

reach $90 billion in originations by 2020, according to a 2016 U.S. Department of

Treasury report about the opportunities and challenges in online marketplace lending. For alternative lenders in the crowd-

funding space, Technavio predicts the

global crowdfunding industry will grow at a

compounded annual growth rate of nearly 27 percent through 2020.

Fintech, to be sure, has played a signifi-

cant role in this growth. As more customers migrate to digital channels, fintech has

drastically changed the way many businesses operate — from retail giants such as Amazon and Apple to traditional banks.

Speed: A Major Attraction It’s fairly common for online alternative

lenders to provide potential borrowers with a lending decision within days. The quick-

ness of these decisions is made possible by

financial technology and has contributed to 34 PRIVATE LENDER

promoted to attract customers. Applications and-mortar retail location or any handling of paper documents.

Algorithmic technology used by alterna-

derwriting to happen in days, not the weeks institution to act.

While speed is good for the consumer, it also

is good for the alternative lending platforms, as it is a core benefit to attract new customers.

Transparency of Platforms While providing transparency into the

risks and rewards of online portfolios is a

strength of alternative lenders, not all plat-

forms are created equal.

It’s important that borrowers and investors

look into an alternative lender’s transpar-


ency and make their own judgment call

borrower or a potential investment are

about whether they have all the information

sound, for example?

investment decision. Certainly, investors

lenders in the past three to four years, so some

adviser and legal counsel prior to making an

but investors, and borrowers should also seek

before taking out a loan.

check with regulators regarding compliance.

financial background may find it difficult to

for these evaluations. They’ll want to read

transparency, data quality and customer

disclosures, to make sure there exists a level

investor know whether the site’s algorithms

able. If you are going to be giving an online

they need to apply for a loan or to make an

There’s been a lot written on alternative

are encouraged to talk with their financial

sleuthing via Google is a good place to start

investment on an alternative lending site or

out references, expert advice and, of course,

Investors who have no real estate or

evaluate the sites for criteria such as speed, service. How does a potential borrower or

for evaluating financial data of a potential

New investors will need to take some time

the small print, such as the company’s legal

of transparency with which they are comfortlender sensitive financial data in the course

of a loan application, you’ll want transparen-

cy into the way the lender operates and how it protects personal financial data.

If you are applying for a loan — whether

from an alternative or traditional lender —

you’ll want easy-to-understand information about the loan’s terms, such as the interest

rate and fees. Everything should be transparent and understandable.

Great Customer Service At first blush, it would seem like brick-

and-mortar banking institutions might have

a leg up on customer service due to the abili-

ty to serve customers face to face, but there’s more here than meets the eye.

As many of us know, securing a real estate

investment loan – whether for a fix-and-flip,

rehab, or a straight purchase – can be painful and time-consuming. Just completing all the

documentation for application can take days,

while the appraisal and underwriting process can drag on for weeks, potentially yielding a disapproval, creating significant inefficiencies in your investment business.

The 24/7 access to online marketplace

lending portals is a big deal in today’s

tech-savvy world. Attempting to access a

lender during business hours is no longer an

issue, as alternative lenders allow a customer to access their site and file an application on any day and at any time that is convenient

for them, not just convenient to the lender.

The actual process, once a borrower is on an alternative lender’s website, is typically fully

web-based without the requirement to gather paper documents.

The availability of online alternative lend-

ers has created more opportunities for bor-

rowers, lenders and investors as geographical boundaries have melted away.

The fact that alternative lenders are exMARCH/APRIL 2017 35


ALTERNATIVE ANGLE

We expect the industry will continue to break new ground in innovation, technology, credit risk modeling, user experience and customer service as platforms respond to growing competitive pressures and increasing compliance demands from regulators.”

For decades, a person’s credit score has

azon and Authorize.net, along with relevant

be approved or not. Those with marginal

few of the potential data sources that help

huge role determining whether a loan would panding credit availability to borrowers who

from Intuit, QuickBooks, eBay, PayPal, Am-

been the one go-to guide that has played a

shipping data, and so on. These are just a

may not qualify for a traditional bank loan is

scores were often denied. After the financial

marketplace lenders.

closures were rampant, banks tightened

Conclusions

are continuing to evaluate their services to the

became, well, pretty darn difficult.

important component of current financial

Technology allows for subsequent loans to be

consider who is a good risk and who isn’t.

This speed can yield a far superior customer

the lending equation, big data has allowed

borrowers returning for their next loan.

ing at a much wider variety of information to

Big Data Pushes Alternative Lending to Forefront

is a good risk. Asset-based lenders providing

also an important customer-centric focus for Like traditional lenders, alternative lenders

customer in order to attract repeat business.

crisis, when times were tough and fore-

the hatches even more and getting a loan Now big data is changing the way lenders

determine a borrower’s risk profile.

Alternative lenders have become such an

society in the past handful of years that soon they may no longer be referred to as alter-

processed much faster and more efficiently.

While credit scores may not disappear from

native. Much of what they are doing now to

experience, increasing the chance of those

lenders to supplement credit scores by look-

quo. Speed, transparency, exceptional cus-

Big data has the potential to truly trans-

form lending in the United States, even for

help them determine if a potential borrower

gy will be the given, not the exception.

Fintech will continue to mature as the

alternative lending segment ages. Lenders

opposed to solely evaluating the borrower’s

balance that allows them to expertly evaluate

with the ARV/LTV of the project itself, as transactional history.

into their platforms.

ness lender Kabbage gathers information

36 PRIVATE LENDER

tomer service and innovative use of technolo-

real estate loans are often more concerned

traditional lenders, some of whom lag be-

hind in adopting robust financial technology

disrupt the status quo will become the status

Forbes notes that alternative small busi-

will evolve their smart algorithms to find the the risk level of potential borrowers and de-

cide whether it makes sense to extend a loan. “The growth and development of this


market is being influenced by broader technological and societal

changes, which suggest a structural rather than a cyclical change to

how finance is being provisioned,” said the Cambridge/University of Chicago report.

“We expect the industry will continue to break new ground in

innovation, technology, credit risk modeling, user experience and

customer service as platforms respond to growing competitive pressures and increasing compliance demands from regulators.”

Indeed, the many benefits of fintech as applied to the alternative

lending market are just being discovered. ■ ABOUT THE AUTHOR

Brian Fritton is Patch of Land’s Co-Founder and Chief Technology Officer. He oversees Patch of Land’s technology strategy, including development, infrastructure, information security and mobility across all aspects of the company’s proprietary software. Fritton has more than 10 years of technology leadership and implementation experience across a wide range of development languages, enterprise frameworks, UX/UI, API-centric products, service-oriented infrastructure and high-availability architecture. He has led teams in setting strategic product vision and execution in the search industry, online ad exchanges, billing and accounting, media and financial services. Fritton previously held a leading development role with one of the nation’s leading e-commerce solution providers, helping to plan and build applications for brands like Warner Music Group and Ghirardelli and also led the implementation of a large-scale API, billing and audit system for Info.com’s keyword marketing venture. He holds a B.S. degree in E-Business from DePaul University in Chicago.

MARCH/APRIL 2017 37


FINANCE

What’s Not to Like? The private lending space offers benefits to lenders and borrowers, alike. by Robert “Bobby” Montagne

T

he roots of private lending date back

Profitable and Scalable Investing

when wealthy landowners and feudal lords

Over the last several

thousands of years to Ancient Rome,

used their land and property to obtain collat-

years, there has been

Private lending has really come into its own

in private lending,

the Great Recession and the ensuing height-

be both profitable

Frank), traditional banks emerged bruised

ed basis with proper

otherwise necessary for entrepreneurial ven-

diligence—secure.

ways by non-traditional lenders, particularly

ever-improving tech-

Armed with market demand as well as the

of available data and

eralized loans. Fast forward to modern times.

extraordinary interest

since the economic crisis of 2008. Following

as it has proven to

ened regulatory environment (e.g., Dodd-

and—on a risk-adjust-

and gun-shy, resulting in a dearth of capital

underwriting and due

tures. That vacuum has been filled in many

Between the JOBS Act,

in the real estate sector.

nology and an influx

passage of the 2012 Jumpstart Our Business

transparency, private

to spark investments in small businesses, a

into a maturing and

seized opportunities through private place-

asset class. As a result,

lending, private REITs and so forth. Acceler-

firms and Silicon Valley techies have rushed to

resulted in availability of new capital to fix-

capital and investors a new method of achiev-

real estate investors alike.

has resulted in a lend/invest model that can be

Startups (JOBS) Act, which was designed

lending has evolved

number of new entrants have recognized and

more readily available

ments, peer-to-peer crowdfunding, direct

Wall Street investment

ated growth in the private lending space has

get into this space, offering borrowers access to

and-flippers, builders, developers and rental

ing healthy returns. This confluence of events

As a premier provider of hard money loans for

acquisitions, construction and renovation proj-

scaled and sustained across various platforms.

JOBS Act and Crowdfunding

for two decades in the development and, more

private lending space for several reasons. With

we like about the private lending space.

can now, for the first time, generally solicit

recently, private lending industries. Here’s what

38 PRIVATE LENDER

credited” and the issuers (lenders, in this case) take reasonable steps to verify that status. In

other words, this “506(c)” offering allows lenders to advertise investments in their funds or loans without the rigors of a public offering, resulting in wider access to retail accredited

investors at a fraction of the cost and regulato-

ects in the Washington, D.C., region, we at Walnut Street Finance feel privileged to have participated

private offerings, so long as investors are “ac-

The JOBS Act of 2012 revolutionized the

the passage of Title II of the JOBS Act, lenders

ry hurdles of a public offering.

Additionally, implementation of Title IV

of the JOBS Act, nicknamed “Regulation A+,” has resulted in the ability for lenders to raise

up to $50 million from the general public, i.e.,


both accredited and non-accredited investors.

under contract—easily and efficiently can be

SEC approval and ongoing reporting, the fees

ey in secured, first-lien real estate loans. The

some than traditional public offerings.

portal (or manager, as the case may be) essen-

Though a Regulation A+ offering does require and reporting requirements are less cumberThe above provisions, coupled with

crowdfunding portals and impressive

websites targeted directly to borrowers and retail investors, have created a remarkable internet footprint attracting peer-to-peer

investors in real estate. Said differently, local builders and developers (borrowers) with a project in mind—and perhaps a property

matched with investors seeking to place mon-

With the above tools at our disposal, we like

operating in this market, especially with the potential to scale and reach wide audienc-

borrowers and investors never meet, and the

es. In fact, Walnut Street Finance recently

tially acts as a clearinghouse. The portals also

allows us to advertise to the public.

provide liquidity to existing lenders by giving them one option for a secondary market,

launched a 506(c) private offering, which

where existing loans can be sold in whole or

Wall Street and Private Equity Validation

tors the ability to select their investments (as

Silicon Valley have entered the hard mon-

in part while simultaneously offering inves-

opposed to, say, REIT investments, which are selected by the trust manager).

Private equity firms from Wall Street to

ey arena in several ways, further validating

private lending as an asset class. For example, MARCH/APRIL 2017 39


FINANCE

Patch of Land and Asset Avenue have become

value. Entrepreneurs with some skills and

and each has raised millions of dollars from

a profit by rehabbing old properties. In

household names in the hard money space,

venture capital investors. Big banks, including Goldman Sachs, J.P. Morgan Chase and Wells

Fargo, reportedly have begun extending credit lines to fix-and-flip lenders.

Importantly, secondary markets for hard

money loans are beginning to crystalize.

Industry leaders include Los Angeles-based

PeerStreet, which buys loans and crowdsources them to investors, and New York-based

Toorak Capital. Like Fannie Mae and Freddie Mac in the consumer space, these secondary market participants purchase “conforming” loans, thereby increasing liquidity and effi-

ciency in the private lending market. Surely, another sign of a maturing space.

Social Responsibility The money may be hard, but it isn’t mean.

In fact, hard money lending promotes social responsibility in several ways: • First-lien investing is

the determination to work hard can turn other words, fixing-and-flipping is one

way to achieve the American dream, and that makes us feel good.

•W  e like the idea that we are growing

America by helping small businesses

(contractors, builders, real estate investors, suppliers, vendors, inspectors and

even stagers) achieve success. When we grant a hard money loan, we see ripple

effects that strengthen the country’s employment picture.

Billions in Untapped Potential Before becoming a private money lender,

Walnut Street renovated and flipped nearly

200 row houses in Washington, D.C., neigh-

borhoods such as Petworth and Eckington.

For every property that we renovated or saw

being renovated, we saw many more

distressed properties on the same block, ripe for restoration. If

you multiply the thousands

used to rehabilitate

of row houses in DC that

dilapidated properties

need rehabbing by the

and thus revitalize

average sales price for each,

neighborhoods. Hard

money lenders are more willing than risk-averse

banks to make loans on prop-

the untapped market is in the

billions of dollars. After seeing

in Washington, D.C., and realizing that lack

munity, the economy and tax collectors.

investors, we decided to enter the private

• Human potential can be unleashed

of capital was holding back many real estate lending arena.

Decades of experience as a developer,

through hard money lending. Private

builder and equity owner give us unique skills

folks traditionally ignored by banks,

show borrowers how to avoid mistakes, how to

primarily on the basis of the property’s

to stay on time and within-budget. We have

lending provides a pathway forward for

and insights to help rehabbers succeed. We

as hard money loans are underwritten

choose vendors and suppliers wisely and how

40 PRIVATE LENDER

contacts, know the local players and under-

stand who has the ultimate power to make or

break your project. Walnut Street Finance also prides itself on honestly and transparency.

We do what we say we’re going to do. In real estate, we think that goes a long way.

And guess what? We have fun doing what

we do. For one thing, we get to wear a lot of hats. Our days are spent conducting comparative market analyses, pro formas and

risk assessments in the office, then traveling on-site to check out projects and meet many different types of people along the way. ■ ABOUT THE AUTHOR

first-hand this enormous potential

erties in marginal areas. The resulting

gentrification is good for the local com-

Over the last several years, there has been extraordinary interest in private lending, as it has proven to be both profitable and— on a risk-adjusted basis with proper underwriting and due diligence—secure.”

Bobby Montagne is a real estate entrepreneur with thirty years of experience in commercial and residential property development, finance and sales. After developing more than 1,200 residential units and 200,000 sq. ft. of commercial space in the Washington DC metro area, Bobby started flipping houses on a large scale. He renovated and sold more than 200 row houses in DC neighborhoods such as Petworth and Eckington, helping transform those neighborhoods. After seeing firsthand the potential of the fix and flip market in Washington DC, and realizing that lack of capital was holding back many real estate investors, he founded Walnut Street Finance, a private money lender, in 2016. He now funds renovation projects in DC, VA, MD and DE.


Jon Hornik, Partner

MEET THE NATION’S GO TO ATTORNEY FOR PRIVATE LENDERS. With over 20 years experience in the private lending industry, Jon Hornik has earned the respect of both borrowers and lenders alike. Mr. Hornik currently represents and advises many nationwide private lenders. His expertise includes: Closing private money deals  Licensing requirements  Usury  Predatory lending Underwriting  Structuring  Private placements 732.409.1144 | www.lhrgb.com

MARCH/APRIL 2017 41


LEGISLATION

Is There a Doctor in the House? The outlook for federal housing under the Trump administration. by Jeffrey N. Levin

A

s the Trump administration embraces rapid change across many spheres

of government, it is the approach to Section 8 housing that has the potential to bring

opportunities for builders and the private finance industry. In this regard, it is par-

ticularly notable that President Trump Dr.

Ben Carson, who grew up in the inner city,

to head up the Department of Housing and

Urban Development. Carson, a surgeon who

comes to the position with no government or policy experience, has pledged to bring new

thinking and strategy to the department that oversees federal housing subsidies.

Last month Carson told The Washington

Post, “Having me as a federal bureaucrat

would be like a fish out of water, quite frankly.” Yet this fish out of water does have strong views when it comes to housing. Carson has

been a vocal critic of HUD’s Fair Housing rule, which requires local communities to assess

patterns of income and racial discrimination.

He criticized this rule as being like a “mandated social-engineering scheme.” Carson went on to say, “This is just an example of what

happens when we allow the government to

infiltrate every part of our lives. This is what you see in communist countries.” 42 PRIVATE LENDER


MARCH/APRIL 2017 43


LEGISLATION

The Role of HUD To understand the implications of possible

changes to subsidized housing policy, it’s use-

ful to understand just how large a role HUD

plays in the residential market. HUD is a $48 billion agency overseeing public housing

for low-income families. It manages federal activity under Section 8 of the Housing Act of 1937, which authorizes the payment of

rental housing assistance to private land-

lords on behalf of approximately 4.8 million

low-income households in the United States. The largest part of this section of the Act is

the Housing Choice Voucher Program, which pays a large portion of the rents and utilities of about 2.1 million households.

The Voucher Program provides “tenant-

based” rental assistance so a tenant can move from one unit of what is considered the least acceptable minimum housing quality to an-

other. It also allows individuals to apply their monthly voucher toward the purchase of a home, with an estimated $17 billion going

toward such purchases each year. Currently, the maximum voucher is $2,000 a month.

Section 8 also authorizes a variety of “proj-

ect-based” rental assistance programs, under which the owner reserves some or all of the

units in a building for low-income tenants, in return for a federal government guarantee to make up the difference between the tenant’s contribution and the rent in the owner’s

contract with the government. A tenant who

leaves a subsidized project will lose access to the project-based subsidy.

Thus, the main Section 8 program, the

Voucher Program, may be either “proj-

ect-based,” where its use is limited to a

specific apartment complex from a public housing agency (PHA), or “tenant-based,”

where the tenant is free to choose any suit-

able unit in the private sector and may reside 44 PRIVATE LENDER

anywhere in the United States (including

the FMR for a one-bedroom apartment in

8 program. Under the Voucher Program,

places it was less than $500.

Puerto Rico) where a PHA operates a Section individuals or families find and lease a unit

San Francisco was $1,522, while in many other A landlord does not necessarily have to

and pay a portion of the rent.

accept Section 8 tenants, although he or she

justed income for Section 8 housing. Adjusted

Depending on state laws, refusing to rent to

Most households pay 30 percent of their ad-

income is a household’s gross (total) income minus deductions for dependents under

18 years of age, full-time students, disabled persons or an elderly household member,

and certain disability assistance and medical expenses. The PHA pays the landlord the

remainder of the rent. Each year, the federal

government looks at the rents being charged for privately owned apartments in different

communities. The Fair Market Rents (FMRs) are amounts (rents plus utilities) for medi-

um-quality apartments of different sizes in a particular community. For example, in 2012

must meet the Fair Housing laws, regardless. a tenant solely for the reason that he or she has Section 8 may be illegal. On the other

hand, landlords can use a general means of disqualifying a tenant, for example based

on the applicant’s credit, criminal history,

past evictions, etc. Many turn down Section 8 tenants because HUD requirements –

inspections, ceilings placed on the amounts they may charge for rent and the judicial

challenges involved with evicting non-paying tenants – are considered too much hassle.

Landlords who do want to accept Section 8 tenants cannot charge more than a rea-


sonable rent and cannot accept payments outside the contract.

Although some landlords may not

embrace Section 8 tenants, others embrace them for the following reasons:

•T  here is a large available pool of potential renters for Section 8.

• The PHA generally pays promptly for its share of the rent.

• Section 8 tenants have an incentive to

take good care of the property because

tenants can be kicked out of the program if they owe a previous landlord for any property damage.

Obama’s Fair Housing Rule With an ample supply of Section 8 renters

and landlords willing to lease to them, the

to The Daily Caller. In a meeting last summer

as an effective way to provide a minimum

ter, New York, Trump reportedly said that he

More recently, the former Obama administra-

communities. Astorino later told reporters

HUD Voucher Program thrived for decades quality of housing for millions of people.

tion made changes to the Voucher Program by establishing controversial new rules, which drew attention from critics and fans alike.

In 2015, HUD released the new rule that

has been roundly criticized by Carson,

Trump and many other Republicans in

Congress. This new rule requires cities to analyze racial and financial segregation

among their residents. In addition, Obama’s

solicitor general filed an amicus brief on the side of Fair-Housing advocates in Texas Department of Community Affairs v. Inclusive

with Rob Astorino, a politician in Westches-

thought the rule took away the rights of local that Trump said that the rule “would not continue under the Trump administration.”

The new administration can take a few differ-

ent tacks to eliminate or nullify the 2015 rule. On the one hand, Carson can work with Congress to rescind the rule in its entirety. On the other

hand, the administration and Congress can simply not provide funding for HUD to continue

adding the staff necessary to administer the rule and monitor the progress of communities in evaluating their housing stock.

Also, the executive branch could decide

Communities, a landmark Supreme Court

to stealthily reduce enforcement of the Fair

Obama administration proposed changes to

HUD actions and through the Department

case about the Fair Housing Act. Further, the the longstanding Section 8 housing-voucher program to provide more money for the vouchers for low-income families who are

living in higher-cost areas, the so-called 2015 rule to “affirmatively further fair housing.” Under the 2015 rule, cities are required to

assess whether housing in their communities is racially segregated and then release

the results of that assessment every three to five years. Urban leaders are encouraged,

through financial incentives, to set desegregation goals, establish new low-income

housing in integrated neighborhoods and track their progress on those goals.

The rule was widely panned by many

Housing Act more generally, both through of Justice. For example, HUD now has the

ability to revoke funding from communities that it determines are perpetuating segre-

gation. This happened in Beaumont, Texas, after state and federal leaders agreed that

the neighborhood the city had chosen for a

new public-housing complex was excessively segregated. HUD refused to provide the expected funding for the project and told

city leaders it could get the money only if the new housing complex was built in a more

integrated neighborhood. Under Carson, the decision can be made to simply not pursue any such enforcement activities.

Alternately, the Trump administration

conservatives, who saw it as government

may also “pocket veto” Fair Housing enforce-

new rule is to empower federal bureaucrats

Department not to spend the resources on

overreach. “The explicit purpose of HUD’s

to dictate where a community’s low-income residents will live,” Sen. Mike Lee, R-Utah,

said on the Senate floor. President Trump has signaled his dislike of the rule too, according

ment activity simply by directing the Justice

civil rights housing and lending enforcement. Between 2012 and 2015, for example, the Civil Rights Division of the Justice Department

filed more than 100 lawsuits to combat housMARCH/APRIL 2017 45


LEGISLATION

ing and lending discrimination. The Justice

has proposed could mean changes in the Low

that use federal funds, for example under

Sessions may choose not to prosecute so

is currently responsible for most affordable

risk. Even state- and municipal-sponsored

Department under incoming Secretary Jeff many Fair Housing lawsuits.

Other signature Obama housing efforts will

likely be eliminated or replaced by Carson. These include the Choice Neigh-

borhoods initiative, a major

program started in 2010. Choice expands on

Hope VI, a longtime

Income Housing Tax Credit program, which housing built in the United States.

Furthermore, Congress may implement

deep funding cuts that would put many

other programs at risk of being functionally

“de-funded.” That’s because when President Obama signed the Budget Control Act of 2011, ending the recurring fight over the

country’s debt limit, he put in place spend-

HUD program from

ing caps on federal funding for defense and

to redevelop distressed

generally signaled a desire to protect defense

the 1990s, and seeks

housing projects and

the neighborhoods around

them. Since 2010, this initiative

has given out annual grants to neighborhoods and cities. Changes under the Trump administration may include more focus on privatizing public housing, and enrolling real-estate developers to take responsibility for revitalizing the neighborhoods around housing

non-defense programs. President Trump has programs while lowering spending caps for

non-defense programs. He also wants to cut non-defense spending by 1 percent a year

for the next 10 years, which could put HUD programs at risk of widespread budgetary problems. Spending cuts could lead to

fewer Section 8 vouchers, for which there

are already very long wait-lists around the

nation, as well as lower overall spending on

complexes. This may represent an important

public-housing complexes.

developers in the coming years.

Rapid Changes Ahead?

Congress: HUD on the Chopping Block?

construction and development sectors need

new stream of projects for private lenders and

The biggest changes to HUD may not even

come from incoming Secretary Carson. While he is skeptical about many of the HUD initia-

tives, his admitted lack of experience running a federal agency might create conditions

where the seasoned department bureaucrats under his command maintain the status quo

for better or worse. Rather, the big change to HUD may come from President Trump and the Republican Congress, which are both

skeptical about federal funding for programs that they think are better run by the private

sector. Reforming the tax code as Paul Ryan 46 PRIVATE LENDER

Private lenders and participants in the

to be vigilant about the changes, if any, that are around the bend for HUD. For projects with any significant degree of low-income

housing stock, there will be an increased risk profile if federal subsidies for housing are

reduced or eliminated. Even if a project does not involve Section 8 funding, the possible sizeable reductions in federal vouchers

would shrink demand for rental units as

many families are priced out of the market. And with reduced demand, market prices could tumble precipitously.

More complicated projects involving rede-

velopment of large tracts or neighborhoods

the Choice Neighborhoods program, are at projects may run into budget problems if re-

duced funding by the federal government in housing has a knock-on effect downstream. Keep in mind the famous quote from the

ancient writer Sun Tzu: “In the midst of

chaos, there is also opportunity.” For private lenders, there may be an increase in deal

flow in cases where federal funding is pulled away from projects that are otherwise quite viable. The reduction in Section 8 housing vouchers may result in new buildings or

whole neighborhoods being suitable for

redevelopment at higher target prices. And

landlords relying on HUD subsidies may find themselves either borrowing to improve the

marketability of their rental units, or putting them up for sale to cash buyers. Combine

the broader context of deregulation under

the Trump administration and the Republican Congress; the growing concern that the

commercial market may be a bubble ready to burst; and the likely changes to HUD under Dr. Carson’s surgical scalpel, and you have

a mix of factors that will make the next few years very, very interesting. ■

ABOUT THE AUTHOR Jeffrey N. Levin is the founder and president of Specialty Lending Group and Pinewood Financial, which together provide a full suite of boutique private real estate lending services in the Greater Washington, D.C., area. Prior to launching SLG, between 1993 and 2007, Levin was a cofounder and CEO of iWantaLowRate.com and a cofounder and president of Monument Mortgage. Levin is a recognized authority on real estate investing and, as such, is a frequent author, lecturer and panelist. He earned a BA degree from The American University in Washington, D.C., and lives on Capitol Hill with his wife, Dunniela, a Canadian trade lawyer, and his two sons, Jack and Charlie.


National Conference & Expo

DALLAS April 29, 2017 | Sheraton Dallas Hotel

Think Realty – Dallas will feature the best and brightest entrepreneurs in the industry – enterprising minds. Connect with pros who are revolutionizing the future of RE Investing. Do deals with some of the area’s most active and successful investors.

ONLY $

If you’re a Private Lender, looking for deals in the real estate industry, there is no better way for you to connect with Investors, Rehabbers, and Real Estate Entrepreneurs.

75!

REGISTER AT THINKREALTY.COM

SAVE THE DATE FOR OUR NEXT EVENT: Think Realty National Conference & Expo

BALTIMORE June 24, 2017

Interact with serious investors, attending sessions and panels with a focus on navigating the legal landscape of RE investing.

25

$

Early Bird Tickets

FREE Admission for Investor-Level Think Realty Members

Not a Think Realty Member yet? Sign up and receive FREE access to all Think Realty Events nationwide. MARCH/APRIL 2017 Learn more at ThinkRealty.com or call 816-398-4130.

47


LEGAL

5 Financing Tips

According to Bankrate.com, the average interest rate on a conventional 30-year

Here are five important ideas for financing your real estate investment transaction.

B

important as ever among consumers,

hovering around 2.50 percent. These rates are some of the lowest in the history of mortgage lending. If there was ever a better time to

by Nema Daghbandan, Esq. ecoming a homeowner is still as

home loan is 3.65 percent, with 15-year rates

finance real estate, we haven’t seen it. real estate investment transaction.

#1

ALTERNATIVE LENDING Portfolio loans are mortgages

that banks keep on their books, rather than

according to a study conducted by the online

How to Find Financing

of those surveyed dream of becoming a

world and have a clean credit report and low

Many credit unions or smaller banks offer

respondents expect it to become increasingly

bet for financing. Many of the large banks

properties. The loans are typically a little

with good credit. While investment money

counterparts but have easier qualifying terms.

still expect great rates that can increase your

tively fewer regulations associated with them

real estate site Trulia.com. In 2016, 75 percent homeowner one day, although 22 percent of harder to acquire a mortgage.

If you are one of the lucky Americans who

already own a home, yet is considering buying an investment property, pay attention to

these five important ideas for financing your 48 PRIVATE LENDER

If you are new to the real estate investment

selling on the secondary investment market.

debt ratios, a traditional bank is your best

these types of loans to investors with multiple

can offer low rates on mortgages to investors

higher priced than those from their big-bank

is typically a little more expensive, you can buying power.

Portfolio loans are useful, with compara-

and higher credit limits. You can find portfo-


There are important details to consider

when enlisting these types of high-LTV

loans. With a smaller down payment, your

loan balance will be higher, which means it is vital to determine your cash flow before considering it as a rental property.

#4

PRIVATE LENDING SOLUTIONS

Successful and savvy real estate investors

are always seeking to build up their portfo-

lio of properties. A financing strategy many of these investors utilize is private capital. Private lending can come from family or

friends, but there are also private money

lenders that can provide quick financing at comparative rates.

House fix-and-flippers typically use this

type of funding to snap up below-market priced rehab properties quickly. The rate

may be high, but if you plan to quickly turn

around and sell the property, you can cut the finance the entire property or the differ-

annual percentage rate by as much as half.

ment communities or asking your real estate

ence between the real estate value and the

network of lenders with which they work,

represent an excellent opportunity to get im-

#5

of documentation and regulatory headaches.

ers with quick access to the capital needed to

drawing up the mortgage docs.

an explosion in this market with the addition

lio lenders by reaching out to local invest-

agent. Real estate agents have an extensive

and many have nurtured those relationships specifically for the benefit of their clients.

#2

SELLER CARRYBACKS A “seller carryback” is a loan,

or portion of a loan, that the seller provides

loan available to the consumer. These loans

mediate financing with a minimum amount

A Realtor or escrow company can assist with

#3

LOW CAPITAL? PURSUE AN FHA 203K LOAN

PRIVATE MONEY POOLS Private lenders use funds pooled

from investors to provide real estate borrow-

finance their properties. There has also been of crowdfunding for real estate. According to

current regulations, accredited investors with

and holds. For real estate investors, seller

A property that is seller-financed means that

investors with little start-up capital. With a

crowdfunding endeavors.

the mortgage at a “market” interest rate

tor can finance the purchase balance, and

typically have a shorter term but are a great

balance. The only downside to 203k loans is

property in the near future.

ty for one year before he or she can rent it or

financing is one of the best options available.

FHA loans are a great strategy for fledgling

more than $1 million (excluding their home value) are eligible to participate in such

the seller has agreed to personally finance

down payment of only 3.5 percent, an inves-

with a specified down payment. These loans

repair costs can be calculated into the loan

Putting Your Retirement Funds to Work

option for investors who look to re-sell the

that the buyer will have to live in the proper-

can legally use those funds to finance an in-

The seller has the possibility to either

place it on the market.

If you own a Solo 401(k) or SEP IRA, you

vestment opportunity. For years, people have

been using their retirement funds to start a reMARCH/APRIL 2017 49


LEGAL

While it does require a fair bit of due diligence, investing into real estate is a great opportunity to take advantage of record-low mortgage rates and use them to make money. There are few better advantages in life than earning profits with “OPM” – Other People’s Money.”

free, non-recourse loans

• Ability to choose from a wide variety of investments Using a Solo 401(k) plan to invest in real

estate comes with a few restrictions. First, you tail business or invest in one, but you can also use it to finance your real estate investment.

Why Use Solo 401(k) for Property Investment? •A  ccess to tax-free capital from the sale of investment property •Y  ou have tax-deferral benefits associated with the capital • You can invest freely with the capital

• Financing of real estate projects with tax50 PRIVATE LENDER

funding sites and an extensive selection of

private money lenders from which to choose, access to capital should not be an issue, as

long as you are a responsible investor who

has done his or her homework in advance. ■

must put the capital gains or net income back

ABOUT THE AUTHOR

penses involved with the investment property

Nema Daghbandan’s practice encompasses all facets of real estate transactions representing lenders and brokers, including loan documents for commercial, residential, construction, multi-family, servicing agreements, spread agreements, assignments (of all types), leases, lien releases, procurement agreements, intercreditor agreements and subordination agreements throughout the country. He also leads the firm’s nonjudicial foreclosure practice and advises clients on all default related matters. He has closed hundreds of millions of dollars in loans throughout the country.

into your 401(k) plan. Second, all costs and ex-

should originate from the retirement account. While it does require a fair bit of due dili-

gence, investing into real estate is a great oppor-

tunity to take advantage of record-low mortgage rates and use them to make money. There are

few better advantages in life than earning profits with “OPM” – Other People’s Money.

With the popularity of real estate crowd-


Use code ‘AAPL’ for a 10% discount!

Join 300+ as they discuss the latest trends, strategies and investment opportunities for private equity, debt and joint venture financing in the land, homebuilding and condo markets

“This was the best conference I have attended in 5 years. The speakers, the topics and the content were excellent. People were not selling themselves – they were dealing with the topics. It is always hard to have many of the real players in one room and you did it. Please do this again.” - Stephen Rosenburgh, Founder, President & CEO, US Developments LLC

www.imn.org/landeast17 Call: 1-212-901-0542 | Email: amelvin@imn.org MARCH/APRIL 2017 51


BUSINESS STRATEGY

Pass or Fail? Develop and implement qualifying criteria to limit risk to your lending business. by Mike Hanna The Challenge A new lender in the hard money business

often can find it confusing to qualify a bor-

rower correctly. What adds more risk to the

picture is when your borrower also is new to

tax returns, no W-2’s, no problem!” Some

to understand. Most of the time these forms

as opposed to hard money financing.

create an application that can be completed

lender ads look like they are selling used cars Whether this is some kind of bait-and-

mation for determining creditworthiness and

gence, you don’t want to emulate anything

as well as understanding the applicant’s

writing loans with no borrower due dili-

you as the lender, as well as for your bor-

they are doing! If they are getting more

rower. I therefore encourage you to do your due diligence on everyone who applies for financing. It’s so much easier today than it

business than you, don’t worry. It’s not the business you want.

These lax lending practices will eventually

has ever been. Checking an applicant’s credit,

catch up to them and they will be chasing

background is something you can easily

ultimately taking back deals they don’t want,

bankruptcy history, and civil and criminal

accomplish online. The problem is most new lenders don’t do it.

This is not intended to pick on anyone

here or incite any panic for new lenders. In fact, qualifying someone for a hard money

loan is confusing for many lenders, both with and without experience. Most lenders who haven’t worked in financial services before don’t know where to start, and many times are not running credit, verifying income, or doing background checks – Yikes! If

this sounds familiar, you need to put some

parameters in place and start implementing real due diligence.

Let Your Competitors Get Into Trouble It doesn’t matter what market you are in,

you are going to have competitive lenders advertise things like “no credit check, no

income verification, no bank statements, no 52 PRIVATE LENDER

online quickly and captures enough infor-

switch routine or they are actually under-

the game. It’s sort of like the blind leading

the blind, potentially creating a disaster for

are filled out incorrectly, so you may want to

down payments, sending demand letters, and because no one can operate like this for long.

Qualifying Philosophy Qualification criteria in the private lend-

ing world is all over the place. While many lenders gather similar information from

prospective borrowers, not everyone qualifies borrowers the same way.

You need to get enough information to

make you feel comfortable: that your borrowers can make their payments, under your rate and terms, with the ability to pay off their loans, without being under any duress.

Taking Applications If you are lending on single-family proper-

ty for any business purpose strategy (i.e., flip,

rental, or transaction-based deal), an application form like Fannie Mae Form 1003 can be

very difficult for most borrowers to complete, and also challenging for you as the lender

performing any required background checks, investing strategy.

Let’s look at a couple of different types of

qualifying processes.


Rental Qualification If your borrower is going to buy a rental

property, then his or her exit strategy is refi-

still be confident that their exit strategy can be successful.

Some Thoughts on Credit Reports Many lenders look at credit reports the

way they look at appraisals. They go to the

page with the score (or value in an appraisal)

nancing out of hard money and into a long-

Flipping Qualification

of loans, you may want to consider working

es, you are going to need to determine the

these applications for you and determine

on your loan program, and the maximum

dard) you may want to see what is causing

like a credit score of 650+, with enough

situational (i.e., divorce, medical situation,

term note. If you do not originate these types with some affiliate lenders who can analyze the creditworthiness of your borrower for a

conventional or conforming loan. Once they are approved for this type of long-term fi-

nancing, they can be automatically approved for your loan.

If you do this for your rental buyers,

you will make the process so much easier

on yourself, as you will not need to do any

detailed analysis on their applications, but

For borrowers who are going to flip hous-

qualifying criteria that works for you based loan-to-value you allow. Consider something cash in the bank to make at least 6 months’ worth of payments after closing (meaning, your borrower is not bringing all of his or

her available cash to closing on one transaction, with no money left in his or her bank account), and a debt-to-income ratio of no more than 50 percent.

and skip the details. However, there are other important aspects in addition to the score. If

a score is low (or below your minimum stan-

this before rejecting someone outright. If it’s identity theft, etc.), they may still qualify

based on other things in their application.

High income, low debt-to-income and a large amount of cash in the bank can help offset a

low credit score. Conversely, if this applicant doesn’t like paying the bills, that’s a com-

pletely different story, and one that would

MARCH/APRIL 2017 53


BUSINESS STRATEGY

warrant not being approved for financing.

comfortable originating a loan with her, as

or your attorney. When qualifying an entity,

Sample Scenario

as a borrower.

make up the entity, by having each of them

Take a look at the following scenario as

her credit score is not reflective of who she is She will not be the only applicant you get

you need to rely on the primary partners that complete an application so their individual creditworthiness can be verified.

an example. A client applies for a $200,000

like this. Many borrowers need private loans

ation with her health where she was injured

derwriting until their credit score improves.

an LLC, and two of them have good credit

goes, bad things sometimes happen to good

Qualifying Entities?

would remove the bad credit applicant from

ly and she was working on a payment plan

like a partnership or LLC. Although most of

partners qualify together. Combine the other

report was timely and her debt-to-income

you can perform a background check on them

to get a single debt-to-income ratio. If the

absolutely do so, or have someone do this for

would qualify. Also combine their individual

loan with a 600 credit score. She had a situ-

and owed back medical bills. As the saying

people. Her credit score dropped significantwith her creditor. Everything else on her

was only 20 percent. Her salary at work was

$180,000, and she had around $75,000 in the bank. In a situation like this, you should feel 54 PRIVATE LENDER

because they cannot get past traditional un-

For example, if you have three partners in

while the other one has bad credit, you

Many clients will borrow under an entity,

the qualification, and make the other two

these entities will not have established credit,

two partners’ income and debt payments

(for lawsuits, bankruptcies, etc.) and should

DTI is below your threshold, then the entity

you, such as the title company you are using

cash positions, if they are not already in the


entity’s bank account, to determine their total cash reserves.

well as employment gaps, can be a dead give-

away to someone who has been incarcerated. If you see this, run a background check.

Personal Guaranty

It’s amazing what you will find on some people,

while others can slip through the cracks, as the

Whether it’s an individual or an enti-

ty, always require a personal guaranty on

everyone in the loan. This allows you to have recourse against each one personally in the

event of a default. Your attorney can provide

you with the appropriate document you need for your lending business in your state.

data just isn’t there. It’s your decision whether you want to loan to a borrower who has a criminal

record. While a misdemeanor 10 years ago may not securities fraud certainly does, and don’t be surprised if you get one (or more) to apply!

to get any applicants who have a criminal

Yes, there are people out there who will

try to trick you and do something nefarious.

Therefore, run a criminal background check on your applicants as part of the qualifica-

tion process. Time gaps on credit reports, as

standing of what it takes to develop and

implement some qualifying criteria for your

lending business. If you stay disciplined with this for each and every borrower, you will

certainly limit your risk exposure and feel comfortable originating every loan. ■

disqualify someone, an applicant who committed

You may be thinking that you are not going

Background Checks

it is hoped you will have a better under-

record, but that is simply not true. Do a background check.

Conclusion By following what has been outlined here,

ABOUT THE AUTHOR Mike Hanna is a real estate investor, hard money lender, mentor, and public speaker. He has been an active real estate investor since 2002, and has been in the hard money business since 2005. Altogether, he has completed over 1000 transactions. He is the group leader of one of the premier real estate mastermind groups in all of North Texas. He is also the owner/principal of Investmark Mortgage, LLC, which is an award winning hard money lender with offices in North Texas and Central Texas.

To increase productivity, Save Time to do what you do best and Reduce Overhead Choose the Note Servicing Center, Inc. FLEXIBLE with customized servicing solutions INNOVATIVE bundling technology with experience STABLE providing excellence in servicing since 1984 COMPLIANT freeing you from regulatory concerns Contact our of f ice for a quote specif ic to your loan servicing needs.

800-646-3445 noteservicingcenter.com NMLO# 270925 • CA Bureau of Real Estate • License# 01488159

MARCH/APRIL 2017 55


MANAGE & LEAD

Truth or Consequences An employee’s lapse in ethical behavior—no matter how small it may seem— can have a compounding, negative effect on the entire workplace. by Chrissey Breault

T

hink you are a person of integrity and

that you bring the highest standards of

ethics to your workplace each day?

Despite hundreds of pages of policies,

56 PRIVATE LENDER

codes of ethics, codes of conduct, organiza-

Lapses in workplace ethics result from in-

tional values, and carefully defined work

appropriate officer behavior such as insider

in workplace ethics occur every day.

harassment, sexism and involvement in con-

environments and company cultures, lapses

stock trading, expense account fraud, sexual


from the company, it appears Hurd left

employees to practice principled workplace

standards of conduct.

policies that cover all employees.

because he violated the company’s expected The appointed interim CEO, until the

ethical decision-making results in restrictive Codes of conduct or business ethics exist

company found a permanent replacement for

to guide the expected behavior of honorable

and said, ‘Mark had failed to disclose a close

tiated in response to dishonorable behavior.

Hurd, asked employees “to remain ‘focused’ personal relationship he had with the con-

employees. But, these often also have been iniIn today’s workplace, potential charges of

tractor who constituted a conflict of interest,

unfair treatment, discrimination, favoritism

and misused company assets.’”

management discretion. The many suffer for

failed to maintain accurate expense reports

Unfortunately, Hurd is neither the first nor

only high-profile executive in recent years

whose downfall was caused by inappropriate

personal conduct. Such lapses in ethics occur in workplaces every day.

Violations may be spoken or unspoken,

published or unpublished, with or without a CEO title. Violations of the rules don’t nec-

essarily have to rise to the level of conflict of

and hostile work environment replace much the sins of the few and sometimes, even the

best employees get caught in the equal treatment trap. At best, time-off policies, to use

just one example, require organization time and energy – hundreds of hours of tracking and accounting.

Everyday Ethics Not all employees will understand the

interest or questionable expense accounting.

challenges experienced by Hurd and other

Lapses in Ethics Drives Policy Development

workplace ethics. Still, all employees have the

Sometimes, untrustworthy actions by

certain employees lead to the implementa-

tion of strict company policies. Consider, for

example, the debate over the effectiveness of a paid time-off (PTO) policy versus one that

divides available days between personal, sick

senior company executives in their practice of opportunity daily to prove the core and fiber of who they are as people. Their values, integrity,

beliefs and character speak loudly through the behavior in which they engage at work.

Lapses in the practice of workplace ethics

come in all sizes—large and small, far-reaching and close to home. Some ethical lapses

flicts of interest.

days and vacation time off.

to rise to such a level that would impact the

times exist is because a few employees may

ployees. Lapses in workplace ethics also can

tempts to offer sympathetic time-off for legit-

ing toilet paper, copy machines and lunch

the employer then feels compelled to limit

ics isn’t always obvious. Only you will ever

about individual employee situations and

lapse in ethics affects your essence as an

Lapses in workplace ethics do not need

The only reason strict PTO policies some-

workplace environment you provide for em-

have taken advantage of the employer’s at-

occur because of simple issues such involv-

imate life reasons. To address the situation,

signup lists.

management discretion and decision-making

case, Hewlett-Packard’s former CEO, Mark

instead institutes policies to govern all.

issues. Based on only the public statement

organizational policies. The failure of some

In a nationally important workplace ethics

Hurd, became entangled in workplace ethics

You can build a similar case for most

affect individual employees. Other ethical

lapses affect whole work groups, and in par-

ticularly shocking instances, such as, Hurd’s,

whole companies, leaving the stakeholders to suffer as a result.

Failure to practice everyday workplace eth-

know about the decision you made, but each individual, as an employee and as a human

being. Even the smallest lapse in workplace ethics diminishes the quality of the work-

MARCH/APRIL 2017 57


MANAGE & LEAD

place for all employees.

Examples of Lapses in Workplace Ethics Each failure to practice value-based work-

place ethics affects your self-image and what you stand for, far more than it affects your

co-workers. Still, the effect of your behavior on your fellow employees is real, tangible and unpredictable.

The following are examples of employees

failing to practice fundamental workplace

ethics. The solution? Change the behavior, of course. You may never have thought of these actions as problems with ethical behavior, but they are. And all of them affect your co-workers in negative ways.

•Y  ou are using the company restroom

and use up the last roll of toilet paper,

or the last piece of paper towel. Without thought for the needs of the next em-

ployee, you go back to work rather than addressing the issue.

• You call in sick to your supervisor be-

cause it’s a beautiful day and you decide to go to the beach, or shopping, or…

58 PRIVATE LENDER

• You engage in an affair with a co-worker while married because no one at work

will ever know. You think you’re in love.

You think you can get away with it. Your

personal matters are your own business.

The affair will not impact other employ-

ees or the workplace.

• You place your dirty cup in the lunch-

room sink. With a guilty glance around

the room, you find no one watching and quickly leave the room.

• Your company sponsors events, activities or lunches. You sign up to attend and fail to show. Equally as disrespectful,

staff ’s tips are shared equally and you

withhold a portion of your tips from the common pot before the tips are divided.

• You take office supplies from work to use at home because, you justify, you often

engage in company work at home, or you worked extra hours this week and so on.

• You spend several hours a day using your work computer to shop, check out sports scores, pay bills, do online banking and

surf the web for the latest celebrity news headlines and political opinions.

• You use up the last paper in the commu-

you fail to sign up and show up anyway.

nal printer, and you fail to restock the

claim you took the appropriate action, so

employee who uses the printer.

You make the behavior worse when you someone else must have screwed up.

• You tell potential customers you are the vice president in charge of something.

When they seek out the company VP at

a trade show, you tell your boss the customers must have made a mistake. • You work in a restaurant, where wait

empty tray, leaving the task to the next

• You hoard supplies in your desk drawer

so you won’t run out while other employees go without supplies they need to do their work.

• You overhear a piece of juicy gossip

about another employee and then repeat it to other co-workers. Whether the gos-


sip is true or false is not the issue. • You tell a customer or potential custom-

the sole owner of a work product or results. There are a few signs that appear if your

truthfulness are also basic tenets in a person with integrity.

People who demonstrate integrity draw

er your product will perform an action

ethics are substandard. You make excuses,

others to them because they are trustworthy

didn’t check with an employee who does.

your conscience that chatters away in your

can be counted on to behave in honorable ways even when no one is watching. ■

when you don’t know if it will and you

• You allow a part that you know does not meet quality standards to leave your

work station and hope your supervisor or the quality inspector won’t notice.

• You claim credit for the work of another

employee, or you fail to give public credit

give yourself reasons, and that little voice of head tries to convince your ethical self that your lapse in workplace ethics is OK.

The short list provides examples of ways in

which employees fail to practice workplace ethics. It is not comprehensive, as there are hundreds of additional examples encountered by employees in workplaces daily.

A person who has integrity lives his or

to a co-worker’s contribution, when you

her values in relationships with co-workers,

a report or in any other way appear to be

trust are central. Acting with honor and

share results, make a presentation, turn in

and dependable. They are principled and

customers and stakeholders. Honesty and

ABOUT THE AUTHOR Chrissey Breault is a Pittsburgh native and hospitality major, Chrissey started a part-time photography and design business in 2009, while working full-time in local government communications. She is currently Director of Marketing and Education Services with the American Association of Private Lenders.

MARCH/APRIL 2017 59


INVESTOR PERSPECTIVE

Renter Nation How an investor can capitalize from Fannie Mae’s rubber stamp. by Abhi Golhar

W

hether you are a private lend-

er, new or seasoned real estate

operator, or real estate agent, this is import-

1. Buy single-family rentals and hold for the long-term, effectively

JANU AR Fanni e Mae Y 2017: will b anno collat ack $1 bill unces it e ral i z i ed by on in debt s i ng l e renta l hom es ow -family by Bl ned ackst one.

embracing the trend.

ant news. In my eyes, the government has

rubber-stamped that we are becoming more

of a rental nation. My co-host Lauren Taylor

and I discuss the implication of this move by

Fannie Mae at length on the Real Estate Deal Talk Podcast, Session 3.

How can we capitalize on this? Well, two

options come to mind: 60 PRIVATE LENDER

2. Buy single-family properties, make the necessary renovations and sell them to individual investors or institutional funds.

determined by its age, location and overall

condition. However, there are a few simple things that anyone can do to increase the

overall value of a home, especially if you’re in Let’s do a quick dive into Option 2. As we

already know, the value of a home is pre-

a pinch and see an opening to make a quick entry and exit on a deal.


Landscaping Let’s put ourselves in the shoes of a tenant. Exterior appear-

ance is a large part of what will influence a tenant’s first impression of the home he or

you can easily transform the outside of your

or trends that will make your home seem

your expenses.

ing to your potential buyers. Once you have

home yourself, further cutting down on

New Paint

she will occupy for the next several years.

Another inexpensive and easy

exterior appearance is too expensive to be

of the home you are selling is to give it a

a lot with simple landscaping. By putting

have paint colors that aren’t up to date with

Of course, completely renewing your home’s worth it for a rental. However, you can do

in mulched flower beds, evergreen shrubs or rock beds, you can drastically improve the exterior appearance of the home you are trying to sell at a relatively low cost.

Better yet, most landscaping projects do not require a specialized contractor. If you are willing to put in the time and some labor,

way to increase the sale value

completely new paint job. Many homes

modern trends, giving them an outdated

feel to investor buyers and ultimately, their renters. Luckily, this problem can be easily solved with a few gallons of paint, a few

hours of time and a very low material cost. Before painting, go online or visit a paint

supply store to get ideas about modern col-

more up-to-date and more visually appealdecided on a color scheme, simply apply

your new coats of paint as needed and be-

fore you know it your home will look much more modern. Painting is another job that most people can do themselves, so labor

cost is once again not necessarily a major

factor. Just be sure to be especially careful with trimming and edging, as you’ll want your new coat of paint to look crisp and fresh when you’re finished.

Minor Kitchen Renovations Most investor-buyers are willing

to overlook some aspects of a house

Contact Tom Schmidt at 785-889-1300 or thomas.schmidt@mainstartrust.com to discuss your IRA custody needs.

MARCH/APRIL 2017 61


INVESTOR PERSPECTIVE

being outdated, especially for rentals. A slightly

be able to do this type of renovation yourself. If

minor changes you may make, it is important

won’t unduly trouble most buyers. The kitchen,

care of it won’t be alarmingly high.

sults possible. Minor aesthetic improvements

By the way

buyers (especially buyers who are funds who

out-of-style bathroom vanity, for example,

however, could be a different matter. Because of the sheer amount of time most tenants spend

cooking, eating and even entertaining in their

kitchen and dining area, it’s important to put the

not, however, the cost to have a contractor take

Too many times I have seen investors

assume the roof, foundation and mechan-

property on the market with an updated kitch-

ical systems such as HVAC, electrical and

to be horribly expensive or complicated. Refin-

STOP! Don’t assume anything. One wrong

en. Fortunately, kitchen renovations don’t have ished cabinets, countertops, faucets and paint will take care of the aesthetic needs of most

kitchens without breaking the bank. If you plan to sell the property with appliances to make the deal more attractive to the buyer, you should

make sure that all of the kitchen appliances are modern and come with the most popular fea-

tures available. If you’re fairly handy, you should 62 PRIVATE LENDER

plumbing are in good, working condition.

move here, and it is the difference between a

higher budget for repairs or a quick sale. Get your inspections and work with a licensed

contractor to set a timeline and realistic budget to get the job done.

These are just a few of the many types of

small projects you will need to undertake to increase the value of a property. Whatever

to keep costs low while getting the best re-

can make the difference between lookers and care about long-term tenants), so make sure that you have the property you are selling fully ready before you begin showing it. ■ ABOUT THE AUTHOR Abhi Golhar is the host of “Real Estate Deal Talk” and Managing Partner of Summit & Crowne. Abhi uses a “valueadded” approach to invest in real estate renovation, new construction and development opportunities in the Southeast United States. He actively educates and works with investors to deploy market-driven strategies that yield success. He holds a B.S. in Electrical Engineering from the University of Michigan. You can find him on Twitter, Snapchat, and Instagram - @AbhiGolhar.


FOCUS...

ON YOUR CORE BUSINESS and let us handle your accounting. Get virtual accounting solutions for private lenders, mortgage pools, and real estate firms tailored to your specific needs. You’ll have accurate and up-to-date financial information on demand. Your sensitive data is always confidential and secure.

C a ll R C G Today

www.RollinsConsultingGroupLLC.com or 386-562-3016

MARCH/APRIL 2017 63


MANAGE & LEAD

The Good, the Bad and the Ugly Anyone can claim to be a leader, but the key question is: Will your team – and success for your business – follow? by Linda Hyde

G

ood leadership is like the light, perme-

fective managers coordinate tasks within their

and poor leadership is like the shadow, dark-

encourages idea sharing and discussion. They

ating into every aspect of the business;

ening many areas of the organization. What is the cause and effect of poor vs. good leadership? What impact will your business have

with a poor leader at the helm? How can good leadership impact results? What qualities do employees look for in a good leader?

Effective leadership is critical in virtu-

departments and promote an atmosphere that get employees aligned in the pursuit of shared goals. Poor management may result in more fragmented departments and work roles,

creating internal silos. This means that each

employee neglects the importance his or her

work plays in achieving overall company and departmental objectives.

ally any type of for-profit or service-based

organization. When company managers lack

the ability to provide clear direction, positive coaching, support and motivation for staff,

Low Morale Another possible consequence of poor

leadership can be employees feeling misdi-

the organizational culture and morale often

rected or uncertain about the company and

tive effects on the company and staff.

contributes to this issue. When overly critical

suffer. Poor leadership can have several nega-

Poor Leadership Breeds Failure Synergy Poor company and departmental leadership

also inhibits the development of synergy. Ef-

their jobs. Poor or lack of communication

managers demean or demoralize well-intentioned employees who make mistakes, the

resulting negative environment may cause them to shut down emotionally. This can

create cognitive gaps within the team, giving

the belief they only “like” and listen to the people who look and think just like them.

“You don’t lead by hitting people over the head—that’s assault, not leadership.” –Dwight Eisenhower Lack of Communication & Engagement It is important for employees to feel like

they have a voice and that it is being heard from the top down. Likewise, they want Source: https://www.barna.com/research/the-different-impact-of-good-and-bad-leadership/#

64 PRIVATE LENDER

to stay informed of decisions and activity


leadership can motivate and invigorate a company’s culture. Good leadership gives every-

one in the company the confidence that they are under the guidance of someone who is

credible and knowledgeable. Strong, focused

leadership inspires people to try new concepts and venture into unknown territories that will develop both their personal and professional skills. By giving the team proper guidance, you will gain their trust and loyalty.

How can a leader make a positive impact

on his/her team?

Diversify your team. Diverse teams feel less comfortable, and

that’s why they perform better. In numerous studies, diversity both inherent (e.g., race,

gender) and acquired (experience, cultural background) is associated with business

success. Although an idyllic atmosphere may

be difficult to achieve, employees nevertheless recognize the many strengths and talents that diversity brings to the workplace, and they

gain respect for their colleagues’ performance. Workplace diversity preserves the quality of

within the company. Too often, a poor leader is unable to communicate effectively, which means important information that needs to

be passed along instead falls on deaf ears or

may be missed completely. The same can be said when there is a lack of understanding

from the leader’s perspective. This all leads

to decreased engagement from staff, impacting the overall business and goals.

The Benefits of Good Leadership On the other end of the spectrum, good

Source: https://www.barna.com/research/the-different-impact-of-good-and-bad-leadership/#

MARCH/APRIL 2017 65


MANAGE & LEAD

employees’ relationships with their co-workers and their leaders.

Take off your rose-colored glasses. Many leaders have unrealistic thoughts

and expectations of what goes on within

their organization and what it looks like to be successful. Good leaders engage with their employees to set realistic expectations and

attainable goals for success together. Engage-

ment is an emotional commitment to the overall organization and its goals when leaders

take the time to forge an emotional bond with their employees. A leader should always have his or her finger on the pulse of the business through communication with the team.

Remove titles, positions and authority. Position, title and authority are often

confused with leadership. We often read

news reports that refer to anyone with a title as a “leader.” However, leadership is not

an actual position or title. Whether you’re

the president of a country or a chief execu-

tive officer, your title does not make you a

leader. All a title does is make you a senior

executive. Leadership happens when people allow you to influence their lives. It’s only

Source: https://www.barna.com/research/the-different-impact-of-good-andbad-leadership/#

when your influence causes people to work

going to make a difference, you will need to

in managing people. When you treat your

leader. Leadership is more about influence

improving your influence and relationship

for their performance, this will in turn

giving orders. Influence can be changed by

The bottom line is that all leaders lead in

toward a shared vision that you become a

sharpen your leadership skills. This means

and relationship than it is about control and

with all your employees.

perceptions, relationships and trust.

either a good direction or a bad direction, and

Heading Toward the Good End of the Spectrum

exceptionally good. Although this direction

The best leaders don’t lead from position.

Nor is leadership attained by exercising con-

trol over others.

Leadership is the empowerment of oneself

and others toward a shared vision. If you’re 66 PRIVATE LENDER

employees with respect and appreciation

give you the results you are looking for in your business. ■

the spectrum runs from exceptionally bad to

ABOUT THE AUTHOR

may not be understood or consciously chosen,

Linda Hyde is Executive Director of the American Association of Private Lenders, an association built on the principles of ethics, education and networking. The Kansas City native has more than 17 years of customer service experience, including 13 years in leadership positions. While you will not find her on Twitter, you can find her on LinkedIn networking with other professionals in the real estate industry.

quite fortunately, we are all human and we thus all have the power of choice.

We can consciously choose to adjust our

actions to always lead in the good direc-

tion to raise our performance and success


Use Discount Code ‘PL15’ for 15% Savings!

1000+ ! pants Partici

Early Confirmed SFR Owners Speaking Include: Mark Wolf, CEO and Founder, AHV Communities

Eddie Wilson, President, Affinity Enterprise Group

Ron Mass, Managing Principal, Altimas Capital

Larry Arth, Founder and CEO, Equity Builders Group

Bob Kociecki, SVP Property Management and Construction, Altisource Inaas Arabi, Director, Property Management, Altisource Jay Byce, SVP of Real Estate Acquisitions, Altisource Josh Gehman, Senior Manager, Investments, Altisource Altaf “Alex” Hemani, CEO & President, ALNA Properties Ron Mass, Managing Principal, Almitas Capital John Knab, Managing Director, Americas Housing Alliance Antoine Gendre, President, Ameristar Groupe

Marshall Sklar, Co-Founder, Florida’s Best Realty Svcs Andrew Lester,COO, GILfund Capital Management Patrick Whelan, CEO, HavenBrook Homes Will Holly, Founder and CEO,Holly Nance David Lichtenger, Managing Partner, Intrepid Capital Investments Carl D. Bell, Co-Head of Investments, Invictus Capital Partners Bruce McNeilage, Managing Partner, Kinloch Partners Gideon Pfeffer, Managing Member, J&G Real Estate Partners LLC

Andrew Flahive, President – Single Family Equity, Amherst Holdings, LLC

Thibault Adrien CEO LaFayette Real Estate

Gashar Dixon, President, Anglestone Real Estate Venture Partners

Sharad Mehta, Member, Max Properties

Ned Grace, Partner, Ausmerica LLC Paul Birkett, Managing Member, Automation Finance LLC Eli Braha, Managing Member & CEO, Berkley Aquisitions LLC George Huang, Partner, Bridge Tower Partners Jackson Su, Partner, Bridge Tower Partners John Burley, Founder & CEO, Burley & Associates, Inc

Jay Caplan, LJ Capital Partners Eric Delgado, Director, MCM Capital John Keeton, Partner, Morningside Funding LLC Matt Sneyd, The Muve Group

Chad Carpenter, Chairman & CEO, Reven Housing REIT, Inc. Greg Coleman,Co-Founder & Managing Partner, Revest Asset Management Howard Steinberg, Co-Founder & Managing Partner, Revest Asset Management William Powers, President, RTO Property LLC Marc Pelletz, Principal Sarasota, 5 LLC & Relax Realty Group Lee Kearney, Lic. Real Estate Broker, Southeast Property Investments Network (SPIN) William Robison, Owner, Storybook Real Estate Richard Stone, President, Stone Family Office Michael Cook, COO,Street Lane Homes Abhi Golhar, Managing Partner, Summit & Crowne Joe Mueller, Head of Investment Acquisition, TANIS Group LLC Bruno Cluzel, CEO, Templestone LLC Sanjay Raghavaraju, CEO & President, 33 Holdings, LLC

Marco Santarelli, President & Founder, Norada Real Estate Investments;

Paul Turovsky, COO, TRAC Global

Stephen Mathew, Director - Trading & Acquisitions, NS Capital Management Engelo Rumora, Founder, Ohio Cashflow Brett Kersh, President, Palmetto

RJ Palano, Director of Acquisitions, Buy Cash Flow Properties

Danny Kattan, Director, PIA Group USA

Doug Smith, Portfolio Manager & COO, Castle Rock Capital Management

Wayne Snell, President, Asset Management, Platinum Ventures

Stuart Steinberg, Director Community, Partners Enterprises LP

Thad Meyer, CFO, Reven Housing REIT

Mark Bloom, Principal/Founder, NetWorth Realty

David Buttross, Owner, Buttross Properties

Ted Weinstein, VP-Acquisitions & Banking Relations, Castle Rock REO

Michael Soni, Senior Advisor, Reven Housing REIT, Inc.

Aaron Kuney, CEO, Piedmont Asset Management

Jack Krupey, Managing Director, PRP Advisors Ed Renwick, CEO, Raineth Housing Rob Helmick, President, Real Estate Solutions

Howard Cooper, CEO, Cooper Family Office

Kathy Fettke, Co-CEO, Real Wealth Network

Leonard Blangiardo, Principal, Domaine Realty Advisors

Tim Horvath, Director - Affilates & Properties, Real Wealth Network

Oscar Vasquez, Chief Operating Officer, Encore Capital Management

Ryan McFarland, Chief Operations Officer, REO Capital Group Missy McCall, CEO, Retire With Real Estate

Alberto Chocron, Chief Operating Officer, Transcendent Investment Management Randy Hagedorn, Senior Vice President, Tricon American Homes Darryl Lewis, Managing Director of Applied Residential & Trio, Trio Leasing Jesse Shemesh, Portfolio Manager, 1217 Realty John Halasz, Managing Director, US Home Aggregation Christopher Crippen, Managing Director, US Residential Asset Fund Dan Bathon, Co-Founder & CEO, VineBrook Homes, LLC Kurt Westfield, Managing Partner, WC Equity Group Adam Whitmire, Director of Acquisitions, The Whitmire Group, LLC Dan Zitofsky, President/CEO, Zitofsky Capital Management

Call: 1-212-901-0542 | Email: amelvin@imn.org | www.imn.org/sfr17MARCH/APRIL 2017 67


DISCOVER THE

Symbol of Excellence FOR PRIVATE LENDING

Members of the American Association of Private Lenders are the new trend-setters in the private lending industry. From their voluntary adherence to a Code of Ethics to their knowledge of the private lending process, they are the gold standard for the profession. Activate your membership with the American Association of Private Lenders to give your business the professional advantage and career boost it needs.

You will: • Join a viable network of industry experts •G  et immediate recognition as an industry professional • Have a voice in creating the standards for the industry • Have access to exceptional professional development opportunities •G  et added marketing support and opportunities to enhance your business

It’s time to take your business to the next level. JOIN AAPL TODAY!

AAPLONLINE.COM • (913) 888-1250

Private Lender by AAPL  

March/April 2017 www.aaplonline.com

Read more
Read more
Similar to
Popular now
Just for you