Page 1


Business Idea Born As Edwin Epperson Served his Country

The Official Magazine of AAPL November/December 2017


Impact of Severe Weather on RE Prices


Avoiding the Pitfalls, Part 1 of 3







What’s Current

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


Business Strategy





Business Strategy

Business Strategy

by Carrie Cook

by Jeff Levin

Pitfalls of Trust Deed Investing


Business Strategy

To Bank, Or Not To Bank


Business Strategy

Real Estate IRAs: Don’t Be Afraid to Start from Scratch

Impact of Severe Weather on Real Estate Prices

How to Reduce Losses Through Active Forbearance




by Clay Malcolm

Lender Limelight

by Mark Melikian


by Bobby Montagne


Tools for Reaching New Heights

Private Lending and Technology

Standard Fiduciary Rule Moving Forward




with Anthony Geraci

Feature: Veteran Business

by Harry Singh

Holiday Memories

by Melissa Lucar

Investor Perspective

Realizing Entrepreneurship While Serving My Country

Holiday Traditions Shared by Private Lender Contributors

Endorsements Every Commericial Lender Should Consider




by Edwin Epperson

Award Nominees AAPL Excellence Award Nominees

Alternative Angle

Real Estate Investment, Alternative Lending Lead Strong Housing Market by Robert Greenberg

by Jason Powell & Abhi Golhar

Last Call

Failure is Part of Success

with Pete Asmus



Reflection Brings Insights R. MICHAEL WRENN CEO, Affinity Worldwide


President, Affinity Worldwide


Executive Director, AAPL



Editor in Chief, Private Lender Director of Marketing & Member Services, AAPL


Senior Account Manager, AAPL


Pete Asmus, Carrie Cook, Heather Elwing, Edwin Epperson, Abhi Golhar, Robert Greenberg, Jeff Levin, Melissa Lucar, Clay Malcolm, Mark Melikian, Bobby Montagne, Jason Powell, Harry Singh

COVER PHOTOGRAPHY Thu Huyen Photography

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.


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


This time of year, we bring together family and friends for fun, friendship and delicious food. I love spending time with those dearest to me, but I also value the professional reflection and anticipation this season brings. I reflect on progress made, challenges overcome and how what may seem like a failure at the time can be a springboard to future success. I anticipate and plan next year’s goals and agenda, leaving room, of course, for the unexpected. As we close out the year here at the American Association of Private Lenders, we’re focused on the military veterans active in the private lending industry and their contributions. In this issue, several of our contributors remind us that success is a journey and there is much to learn by failing. In Pete Asmus’ gripping piece, he relays how failure had once made him contemplate ending his life, until he remembered his loved ones and became determined to learn from his failure and succeed. His is an important story. Edwin D. Epperson III shows us how initial failure in real estate investing doesn’t have to be the end of the story. He went on to become a Green Beret and used the skills he learned in the military to become a dedicated and diligent student of the real estate investing industry, ultimately leading to his business success. Bobby Montagne illustrates how he is creative in helping his borrowers succeed and learn from even the toughest of circumstances, utilizing active forbearance instead of foreclosure. Progress, success, challenges and failures . . . most likely, we’ve all experienced each of these in some form this year. Take a moment to reflect and see them for the teachers and gifts they are. My hope is that we learn from and let every experience propel us to even greater things next year. ■

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 913-888-1250. Use of Private Lender content without the express permission of the American Association of Private Lenders is prohibited.


Executive Director, American Association of Private Lenders

www.aaplonline.com Copyright © 2017 American Association of Private Lenders. All rights reserved.

The American Association of Private Lenders is an Affinity Worldwide Company.





PrivateLenderMagazine.com 6 PRIVATE LENDER

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Remember that no brand is too small to make a giant, remarkable splash

customer acquisitions and sales. Boost trust in your business


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

Loan Growth for PeerStreet PeerStreet announced they have surpassed more

LendingOne CEO Honored Bill Green, founder and CEO of LendingOne, received the Think Realty

than half a billion in loans funded with zero losses to

Honors Private Lender of the Year award at Think Realty’s 2017 Atlanta

investors since its official launch less than two years

national conference and expo. The 2017 Think Realty Honors recognizes

ago. This announcement comes after many other

the leaders and change makers who represent the best in real estate

milestones, including monthly origination volume now

investing and lending. Green was honored with this distinguished award

surpassing $50 million. At this time last year, they had

for his great achievements as a leader in private lending as demonstrated

funded approximately 300 loans, representing about

through the course of his career and the continued growth of his company.

$100 million. To date, the company has funded well over 1,200 loans and growth has been fueled by an increasing investor appetite for this asset class. “While we are excited about the growth, this is just the beginning of our journey to transform the industry,” said co-founder and CEO Brew Johnson. “Our goal remains the same as when we started: to level the playing field between Wall Street and Main Street by providing access and transparency to a market that had previously thrived on opacity.”

CIVIC Does Civic Duty CIVIC private money lending headquarters in Redondo Beach, California, closed all operations on Sept. 14 to give back to the Houston community. CIVIC’s 100+ employees assembled 1,000 Dignity Backpacks for Hurricane Harvey evacuees. Each backpack included essential supplies such as towels, socks, toiletry items and snacks, along with a note of support and encouragement.

“Along with the ongoing growth in our business, I am incredibly proud of the culture and team we have built,” said Brett Crosby, co-founder and chief oper-

Faster Verification Process

ating officer. “We’ve found amazing talent across all

Kingdom Trust and VeriComply announced a strategic relationship

divisions of the business and were recently honored

to accelerate document verification. The result is a verification process

to be named one of the Top 5 Startups To Work For

up to seven times faster, with costs averaging 50 to 80 percent less than

in Los Angeles.”

other traditional verification options. This strategic relationship opens more

A new member of the team is Louis Nees, who

opportunities for those seeking investments in private lending assets. In

joined PeerStreet as head of capital markets. Nees

addition, loan originators, warehouse lenders, ABS sponsors and other

is responsible for leading PeerStreet’s Capital

professionals could also benefit from the new relationship.

Markets team.

AAPL and PMLG Partner American Association of Private Lenders (AAPL) has partnered with Private Money Lending Guide (PMLG), bringing together an association that provides education, ethics and networking opportunities for private money lenders. This tool assists with deal-flow that enables borrowers and lenders to find the appropriate counterpart for their deals. The partnership will work to better serve, educate and connect the community of private money lenders and borrowers. “We want our lenders exposed to AAPL’s resources, education and peer networking. AAPL raises the bar for the industry by providing ethics and best practices education for lenders. The result is that buyers have a better experience. The more confidence buyers have in the process, the more the private lending industry will thrive,” said Erica Ruzicka, director of PMLG. NOVEMBER/DECEMBER 2017 7

Sell your loans to PeerStreet quickly and efficiently PeerStreet provides unprecedented liquidity to the private lending industry. We are a platform for purchasing first-lien residential and commercial real estate backed loans.

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 • Take the hassle out of working with multiple counterparties • 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.




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

New Customer for ABS RCN Capital has become Applied Business Software’s (ABS) latest customer. ABS announced that RCN Capital has chosen The Mortgage Office® software to automate its back-office servicing operations. “We are excited about moving forward with The Mortgage Office® as our loan servicing platform. Our complex investment business models require robust software to handle high volume of transactions. We had various systems in place for many years but absolutely love how tailored and specialized The Mortgage Office® is to our type of business,” said Jeffrey Tesch, managing director of RCN Capital. “We are thrilled to welcome RCN to the ABS family of prestigious clients. We are humbled by being the preferred choice for private lenders in loan servicing software for almost 40 years,” said ABS CEO Jerry Delgado. ABS also noted the upcoming update to The Mortgage Office® Loan Origination System will be ready for the collection and reporting changes of the 2018 Home Mortgage Disclosure Act and Regulation C (HMDA). The upcoming enhancements will enable LOS users to easily collect and report the loan data as defined in HMDA 2017 LAR by the Consumer Financial Protection Bureau (CFBP). The data required under the current rule collected in 2017 must be submitted to the CFPB between January 1, 2018 and March 1, 2018. ABS also announced that Elizabeth Morales has been selected to be featured in the Elite Women in the Mortgage Industry issue by Mortgage Professional of America Magazine. The issue features only 75 women at the vanguard of America’s mortgage industry. Morales was chosen from hundreds of nominees.

Bloomfield Acquisition Bloomfield Capital and VAR Capital Advisors have

New COO for Sharestates Nicole Joseph joined the executive team at Sharestates as the new chief operating officer. Joseph will partner with the company’s CEO Allen Shayanfekr

entered into an agreement under which Bloomfield will

to run operations and compliance while broadening infrastructure to support

acquire the consulting platform and key leadership

the firm’s continuous growth. The addition of Joseph is accompanied by the

from VAR. Renee Lewis, founder of VAR Capital, will be

completion of the company’s SOC 2 Type 2 Certification, affirming Sharestates

named a managing partner of Bloomfield.

now meets the security requirements and parameters for storing information

Bloomfield Capital is a real estate private equity

on the cloud as laid out by The American Institute of CPAs (AICPA). As part of

firm focused on investing in opportunistic and special

her responsibilities, Joseph will ensure the company continues to operate with-

situation debt and equity transactions. Since 2008,

in these policies, guaranteeing customers the highest level of data security.

Bloomfield has deployed more than $500 million in

“I am joining Sharestates for the opportunity to be a part of an innovative and

capital across nearly 30 states. The firm manages

experienced organization that is driving industry change,” said Joseph. “I am

three institutional private-equity investment funds

impressed by what the senior management team has accomplished, and I’m

with over $180 million in assets under management

excited about their vision for the future. My intention is to support the company’s

as of Sept. 30, 2017.

strategic goals by helping them build a world class organization.” NOVEMBER/DECEMBER 2017 9



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

Geraci Name Change Geraci Law Firm officially transitions to Geraci LLP with the successful launch this year of its media and consulting divisions. The media division currently hosts three annual conferences (Innovate, Activate and Captivate) and a monthly magazine, Originate report, which targets loan originators looking to place its loans in the alternative non-bank lending and traditional banking space. Geraci’s goal in adding these two divisions to the Geraci name is to be the primary “go to” for professionals in the alternative non-bank lending, private money lending and hard money lending space. “We are constantly striving to provide value and peace of mind to our clients, which is why that is our brand purpose,” said Christina Geraci, managing shareholder of the firm. “We are building a megaphone to tell the world about the benefits of the alternative non-bank lending space. We hope to pair investors with great loans that work as a fixedincome product for their investing portfolios,” said Anthony Geraci.

New Website for Tarlton Tarlton Corp. has launched its new website. The October launch coincided with an important mile-

New Wholesale Partner Channel CoreVest announced the introduction of a new wholesale partner channel that offers mortgage brokers a way of gaining access to the rapidly growing investor loan market. To lead CoreVest’s wholesale channel efforts, the company recently hired Samuel Bjelac as vice president of Wholesale Lending. Bjelac previously served as divisional vice president with Carrington Mortgage Services, manager of correspondent and wholesale lending for Flagstar Bank, and area sales manager of wholesale lending for First Magnus Financial.

stone in Tarlton’s history—Founders Day, a day of companywide celebration each October 2 marking the birthday of Art Elsperman, one of the firm’s founders and first generation of leaders. The redesigned site offers enhanced content, improved functionality, quick access to essential information and insight into the

Toenjes Joins Capstone Capstone Financial welcomes Trisha Toenjes to the firm as operations manager, further

company’s capabilities. The website features bold photographs and a comprehensive overview of Tarlton,

developing their national loan origination operations. Toenjes comes with a wealth of

in business since 1946. A WBENC-

experience within the real estate and private lending field. Joining in advance of the launch

Certified Women’s Business

of Capstone’s new loan origination platform and Capstone Fund 5, she plans to continue

Enterprise, Tarlton is the recipient

her success in developing streamlined efficient delivery.

of numerous local, regional and

Founder Tyler Stone said, “Trisha’s wealth of experience and

national industry awards for its many

real estate knowledge has already made her invaluable to the

projects and is one of Engineering

Capstone family. Her joining us is a product of Capstone’s

News-Record’s Top 400 Contractors

commitment to improving quality of relationships with our

nationally. Among the new website

customers and employees. I am thrilled we were able to find

features is a filter that allows visitors

someone of Trisha’s character to fill this role. She is my right-

to search Tarlton’s projects by size,

hand woman. I am confident Trisha will play a key role in providing

market type and/or specific attri-

and implementing better loan funding processes for our growth.”

butes such as LEED-certified or historic renovation.




Pitfalls of Trust Deed Investing PART 1 OF A 3-PART SERIES

Conflict of Interest

by Carrie Cook


he comments are all too familiar. “It’s too good to be true...”

Mortgage brokers seek, or are approached

by, homebuilders and developers (borrow-

“You’re going to lose all my money in

ers) who need financing for their real estate

“Trust deed investments are for suckers…”

for investors to lend their money to these bor-

that real estate deal…”

“Real estate investing is too much work,

with minimal financial reward…”

If you know what the pitfalls of trust deed

financing are, then you will know how to avoid them and have a better chance of experiencing real estate investing success. There are three

major pitfalls and solutions every aspiring real estate investor should understand: 1

Conflict of interest


Loan-to-own underwriting


Lack of diversification

project(s). Mortgage brokers also advertise

rowers with the intent to invest in a collater-

alized real estate investment earning passive income. The mortgage broker serves as the

middle person in the real estate transaction

to bring the borrower together with the investors to fund the real estate transaction. This

is a standard practice with mortgage brokers who offer trust deed investments.

The conflict of interest occurs when a

mortgage broker arranges the closing of the transaction to include an origination fee at

a rate of 6 to 10 percent of the loan amount.

Trust deed investing is generally con-

This may not seem like much, but when you

traditional investments. However, like any

the mortgage broker, it may begin to matter

borrowers. In this three-part series, we will

at an 8 percent origination fee charged by

tackle loan-to-own underwriting and lack

a lucrative payday for the mortgage broker,

sidered a safe investment, even safer than

look at how this correlates to the payday for

investment, there are risks to investors and

to you. A $3,000,000 real estate transaction

start by tackling conflict of interest. We’ll

a mortgage broker equals $240,000. This is

of diversification in subsequent editions.

even before the investment performance of

PITFALL #1 – Conflict of Interest

mortgage broker should not get paid for

the real estate loan. This is not to say the

A conflict of interest may arise with how

originating and underwriting the loan. The

the mortgage broker consider the borrower or

does not service the loan and instead passes

Should it be both? That is for you to decide.

tially, the mortgage broker is getting paid

and when the mortgage broker is paid. Does

concern arises when the mortgage broker

the investor to be their client? Can it be both?

the servicing on to another company. Essen-



upfront and walking away with $240,000.

But, what happens if the borrower stops

The second and third scenario are argu-

Why not stay involved? The mortgage broker

making payments? You won’t receive your

ably worse than the first. Can you imagine

else since they completed the underwriting

the servicing company won’t get their fee

call to cover expenses of a foreclosure, or

company stops getting paid, they have a few

to the direction to proceed? Getting every

should know the loan better than anyone

process and should be able to stand behind that loan.

If the mortgage broker is getting paid

regularly scheduled interest payments, and for servicing the loan. When the servicing options. They can sell the loan to a collec-

upfront by the borrower to sell the loan to

tion company, communicate to the investors

performance, then the broker is only incen-

costs to the servicing company to attempt

investors and has no interest in the loan

tivized to sell the loan to investors. If the

broker is not servicing the loan, their client is the borrower, not the investor. In that

case, what is the incentive to the mortgage

that they need to send in an assessment of

collection of the property, or hand the loan over to the investors and suggest they find

an attorney to begin the foreclosure process. If the loan is sold to a collection company,

broker to uphold quality underwriting

the company will charge you to sell the

sure the investors will get their interest paid

will collect a commission of up to 6 percent

standards? What’s their incentive to make

on time and their principal returned? There isn’t any. This type of mortgage broker’s job is over before your investment begins. They outsource the servicing of the loan and move on to the

next real estate transaction. This is referred to as originate, fund and done. If you are the

loan. A little research will tell you that they upon the sale of the property in addition to

recouping any hard costs they spent to take back the property.

When do you see your original invested amount returned to you? That depends

on the sale price the

collection company negotiates for the property. This

investor, what

amount could

The mortgage

by the market

happens next? broker has

outsourced the

servicing to another

company to collect payments from the borrower.

The loan servicer is responsible

also be defined

conditions at the

time. If the market

conditions are good

and the property sells

above the original loan

amount and there are additional

for collecting the payments from the borrow-

proceeds from the sale after the 6 percent

distributing the remaining interest payments

collection company may return 100 percent

make regularly scheduled interest payments,

the rest. Keep the rest? Yes, that is the

er and earns an agreed-upon servicing fee,

commission and the hard costs, then the

to the investors. If the borrower continues to

of your original invested amount and keep

everything is great. 14 PRIVATE LENDER

reward they get for doing a good job.

getting 100 percent consensus on a capital

100 percent consensus from all investors as investor to pay their prorated share of the expenses and having them collected by a reputable representative who knows the

proper course of action and allocates the

investors’ funds with their best interests in

mind to successfully take back the property is like giving a 2-year-old $100 and asking them to hold on to the money for you for

four months until you ask for it back. You are certainly taking your chances with

the outcome. Or how about electing one

investor as the representative for a group of 50 investors to determine the best course

of action? This person would be taking the input and consensus of 50 people to make decisions on how to proceed with taking

back the property, cost allocations amongst

the group, and the sale price accepted for the property—which will ultimately determine the capital return to the investor, good or

bad. When is the last time you heard a group of 50 people who were all on the same page when it comes to money?

Where is the mortgage broker that sold

you that investment? Nowhere to be found.

SOLUTION #1 – An Invested Mortgage Broker The solution to this pitfall is not

complicated. Find a mortgage broker who

is not only compensated through the origination fee, but the actual performance of

the loan. Learn to distinguish between the originate, fund and done types and the

mortgage broker who is not defined as only a “broker.”

Working with a mortgage broker who is

invested in the loan performance defines the mortgage broker not only as an originator

but also as a loan servicer. This distinction

This mentality aligns the mortgage bro-

ker’s interests to their investors. If the loan is not performing, they are not getting paid.

As with all investments, there are inher-

is important because they are not just paid

ent risks, and you must consider the “what

loan servicer and will continue to work with

most do, then great. Your concern should

upfront. This mortgage broker is also the

the borrower’s and investors’ best interests. Just as a third-party loan servicer gets paid for the service, so too does the mortgage

broker now in the capacity as loan servicer.

This implies that if the loan is not perform-

if.” If the loan pays interest and pays off as not be this scenario. Your concern should be the scenario of a borrower not making

the regularly scheduled interest payments. How is that situation handled?

Because the mortgage broker is aligned

ing, the loan servicer is not getting paid

with the investor in this scenario, the

loan servicer acting in your best interest,

borrower throughout the duration of the

either. You now have a mortgage broker/

beyond the point of funding the loan. Keep in mind that no one knows the details of

the property or borrower better than the mortgage broker who did the analysis of underwriting the loan.

There are a lot of services a mortgage

broker can offer. An investor-minded

mortgage broker will offer cradle-to-grave

services that include but are not limited to:

underwriting, origination, capital fundraising, loan servicing and collection/disposition of a property should the need arise.

Are there mortgage brokers who provide these services under one roof? Yes!

Why would they perform these duties?

Because it is good business. A mortgage

mortgage broker maintains contact with the loan. Typically, the mortgage broker pro-

vides the borrower a payment schedule that includes a due date for interest payments and a grace period before action is taken

to secure the property. As the grace period with the borrower to determine if an issue is imminent or if the payment is in route.

If the borrower for any reason is unable or

unwilling to make the interest payment, the mortgage broker who is cradle-to-grave will communicate to the investors and propose the best course of action to secure the real estate asset.

This process is completed in a controlled

environment, unlike the alternative defined in the pitfall. Remember, this is a mortgage

ly skilled professionals who believe in the

borrower and the investors. The mortgage

duties implies they are staffed with diverse-

broker who has the best interest of both the

investments they are offering. They are not

broker acting in the capacity of loan servicer

brokers who handle a trust deed invest-

present to the investors in a communication

gathers all the intel from the borrower to

ment with the cradle-to-grave mentality

that also includes a ballot to allow the major-

origination and loan servicing to create a

of action—either to proceed with the borrow-

also spread out their income earned from reasonable, yet consistent, stream of income from the services provided.

Trust deed investing is generally considered a safe investment, even safer than traditional investments. However, like any investment, there are risks to investors and borrowers.

nears, the mortgage broker will be in contact

broker who is willing to perform all those

in it only for the origination fee. Mortgage


ity loan holders to determine the best course

er and/or to ultimately take back the property through foreclosure or Deed in Lieu.

Upon the majority consensus from the

investors, the mortgage broker turned loan servicer now takes on a third role—default

loan resolution coordinator. In this capacity, a good mortgage broker stands behind the loan they underwrote and ultimately sold

to the investors. A mortgage broker who is

a default loan resolution coordinator has a

vested interest in making sure investors get as much of their original invested amount returned as soon as possible. In some

cases, the mortgage broker will pay for the

expenses to take back the property on behalf of the investors, instead of doing an investor capital call, as the mortgage broker works to resolve the default. It costs approximately 3 percent to 5 percent of the original loan amount to foreclose on a property. If the mortgage broker funds the costs of the

foreclosure process, they are invested in the NOVEMBER/DECEMBER 2017 15


outcome. They’re getting paid when inves-

a mortgage broker who acts in the capacity


the mortgage broker will recoup the funds

broker you want to be investing with. Make

investors’ behalf. This is a really important

default rate has been historically and their

Carrie holds three executive level roles as president of Ignite Funding, CEO of Preferred Trust Company and COO of iManagement Group Shared Services. Since assuming the role as president, Cook has led the team to fund more than $315 million loans with investor capital. As chief executive officer of Preferred Trust Company, Cook oversees the custody of approximately $250 million in client investments and cash holdings. In addition, Cook also serves as the chief operating officer of iManagement Group since September 2013 specializing in managerial services of investment funds.

tors get paid. When they sell the property,

described above is the type of mortgage

outlaid to take back the property on the

sure you ask the mortgage broker what their

point in that the mortgage broker as a com-

track record for recouping investor capital.

for the “what if.”

Do your research and find a mortgage

will go into foreclosure, it is when. You are

services, collects and sells a property should

pany has taken the proper steps to prepare Remember, it is not a matter of if a loan

fooling yourself if you think you will not

experience a real estate investment that is subject to default or market correction. It

will happen in your investment lifetime. It is

how you or the mortgage broker reacts to the situation that matters. When it does happen,


Not all mortgage brokers are the same.

broker who underwrites, originates, funds, the need arise. This is a mortgage broker

who does not have a conflict of interest—

one who is working for both the borrower

and the investor, wants the loan to perform for all parties involved and has a stake in making sure that it does. ■

Equity Participation - Construction - Fix n' Flip Loans




To Bank, or Not to Bank? Construction, commercial and land financing in today’s climate by Jeff Levin


hings have gotten noticeably chillier when it comes to bank loans for the

construction, commercial real estate and land markets. Developers are suddenly

Bankers’ mentality today brings to mind

a famous Shakespeare quote: “There is

nothing either good or bad, but thinking

makes it so.” Because the current cycle has

getting the cold shoulder from previously

such positive fundamentals, lenders and

is a bit curious given strong GDP growth,

has neared or passed its peak and can only

helpful local banks. This change in attitude low unemployment, and only inventory for

multifamily is nearing its long-term supply

their regulators speculate the market cycle trend down from here.

In addition to their concern that the

high water mark when considering all the

economy may be overheating, lenders face

for other segments, like medical-offices, are

regulations as well as nominally higher

property segments. Meanwhile inventory

only at a fraction of their long-term supply

levels. Although the present outlook is rosy,

banks are facing increasing regulatory pressures and are concerned about the possible

end of the current boom cycle, leading many of them to become much more conservative

when it comes to lending. Fortunately, developers can look to other sources of funding,

including insurance companies and private

“hard-money” asset lenders, to start and/or complete their projects.

a combination of worrying challenges from interest rates. The expectation of continued economic expansion is priced into the

stock markets and interest rates, but lenders are being cautioned by regulators to have a downside strategy when it comes to construction, commercial real estate

(CRE) and land risks. Let’s examine these in detail from the bank’s perspective.

Rising Interest Rate Risk When interest rates rise, the banks charge

a 600 basis point spread (BPS) between the

more. So, why do banks find the rising rate

Libor rate and cap rates, and a greater than

The current expansion, which began

borrowers in construction, CRE and land?

Treasury notes and cap rates. This meant

fourth longest in U.S. history. The stock

just a short-term upswing in interest rates

had strong project-fueled cash flow that

profits and expectations of meaningful

off the accelerator of quantitative easing. In

capital and pay a return to their equity

been clear that the historically low interest

interest rate on floating rate loans will take

In first quarter 2017, there was greater than

naturally resulting in lower debt service

Why Are Bankers Nervous? after the Great Recession ebbed, is now the market is booming, fueled by corporate tax reductions from Washington. The

unemployment rate is down to 5 percent in the most recent quarter, according to the Bureau of Labor Statistics.


environment to be risky regarding their

First, it’s clear that the U.S. is not facing

a 400 BPS spread between the 10-year

that borrowers benefited greatly when they

due to the Fed temporarily taking its foot

allowed them to earn back their initial

fact, this is a seminal change. The Fed has

investors. But more recently, the rising

rate environment is permanently ending.

a bigger bite out of borrowers’ cash flow,

coverage. If the interest rate is fixed, then when borrowers refinance a project, they

will likely not receive either the same free

cash flow or a similar level of loan proceeds

as was available to them during the previous low interest rate cycle.

Simply put, higher borrowing rates will

result in fewer loan dollars, assuming that

advance rates hold steady. As a result, borrow-

support refinancing the note. Naturally this provokes some anxiety with the banks.

Bank Lending in Today’s Environment Banks are still originating construction

loans, but they’re pushing back regarding

leverage and insisting that borrowers bring

more equity to the table. Of the construction

ers will need to increase their rental rates and

loans banks will originate, for the most part,

to generate enough cash flow to ultimately

clients who are proven operators with

more tightly manage their operating expenses

they are looking to finance longstanding

projects in attractive submarkets. The more speculative projects, or ones with newer

builders, are not likely to find a home at the

local savings and loan or commercial lender.

Larger banks and S&Ls are also being forced to be more stringent with the quality of their construction loans due to the new Basel III rules. There is a requirement in Basel III

that banks examine and determine whether certain transactions should be classified as high volatility commercial real estate

(HVCRE) loans. This rule impacts any bank




Because the current cycle has such positive fundamentals, lenders and their regulators speculate the market cycle has neared or passed its peak and can only trend down from here.

workhorses, for many commercial deals,

because they are more susceptible to

want to see how absorption rates in each

loans at all, it is only for the top-tier hotel

banks are hesitating to lend because they market will trend.

chains, and only in major markets.

Where to Go in the Current Market

ically shown that they won’t stretch to win

Although the banks are pulling back from

are filling the gap. Life insurance companies

a gateway market for a non-multifamily

land deals, nontraditional lending sources

and private lenders are becoming more com-

petitive in this space. Insurance companies are more conservative in selecting projects to finance and generally steer towards

a developer has a top-tier opportunity in development, the insurance companies are probably not going to be a fruitful lending source.

For everything below that top-shelf type

larger ones. The benefits the insurance com-

of project, the private lenders (often called

and enabling a developer to close on perma-

asset” loan collateral) are a source of fund-

panies offer include prevailing interest rates nent financing for the project well before

borrowing process that they do with banks. with more than $0.5 billion in assets, and

Typically, they first receive a construction

requires the banks to hold an additional

they have to refinance it to a different

fall into this HVCRE category. For example,

the borrowers receive

past and had to hold $2 million in reserves

for the project in a

all savings and loan institutions. Basel III

loan. Then, once construction is complete,

50 percent of cash reserves for loans that

note. With insurance lenders,

if a bank did an $8 million loan in the

permanent financing

against that loan, now if the loan is classified

single loan.

hold $3 million in reserves That, of course,

ers prefer Class A

Insurance lend-

negatively impacts its capital ratio.

office buildings in

do, it’s clear that they have become increas-

kets, plus shopping

prefer to finance projects that offer them the

supermarket chains

C properties, particularly buildings with

nue track record. Insurance

continue to remain fairly desirable for banks

ested in Class B properties, or areas that

strong submar-

ingly picky. Regarding CRE loans, banks

centers anchored by

comfort of proven cash flow. Class-B and

that have a strong reve-

long track records of good operating history,

companies are much less inter-

as cap rates remain low. But outside of these

aren’t really considered gateway markets


deals, and they won’t lend on anything that

doesn’t look like triple A quality. So unless

does not need to follow the typical two-step

Looking at the types of loans banks will

However, insurance lenders have histor-

many segments of construction, CRE and

actually breaking ground. The developer

as an HVCRE, then the bank would have to

economic slumps. If they do hospitality

“hard money” lenders because of the “hard ing. Most hard money loans are for commercial projects lasting from a few months to a few years. These lenders don’t face the

regulatory hurdles that banks and insurance companies have because the private lending market has always been unregulated by

state or federal laws, although some maximum limits

on interest rates due to state usury

laws can restrict hard money

operations in some states

like Tennessee and Arkansas.

While the

regulations put

in place after the

2009 banking

meltdown require lenders

of residential loans to evalu-

ate a borrower’s ability to repay the loan on

primary residences (or face big fines for non-

compliance), hard money lenders only make

indicates their decision-making is based on

turnaround and flexibility. When the

risk of the loan being classified under the

to be financed. Also taken into consider-

project, the hard money lender may be the

commercial loans so that they don’t face the Dodd Frank, TILA and HOEPA guidelines.

The primary criteria hard money lenders

use is the liquidation value of the collateral

more than just the LTV and the type of asset ation is the quality of the developer and

management team. Experienced hands—

banks refuse to finance an otherwise worthy right fit to make the deal a reality. ■

as well as newer borrowers who have done


of the project or creditworthiness of the

projections, and are easy to communicate

will always want to calculate the Loan to

for projects that banks would simply turn

that backs the note, not the income potential borrower; therefore, hard money lenders Value (LTV) either by determining the

liquidation value of the asset through a broker price option or an independent

third-party appraisal. In contrast to a bank offering a 75 percent loan-to-cost construction loan, private lenders might be around 65-70 percent for new construction.

However private lenders are known for

having greater flexibility than banks, which

their homework, provide buttoned up

with—can win support from private lenders down. Certainly, the interest rates on hard money loans are higher than the rates for

traditional business loans. That’s because

the cost of capital for the lenders is signifi-

cantly higher than what banks pay. Interest rates can range from 10 to 18 percent and higher, so projects with weak earnings

potential are unlikely to get much traction.

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. Before launching SLG, between 1993 and 2007, Levin was a co-founder and CEO of iWantaLowRate.com and a co-founder and president of Monument Mortgage. Levin is a recognized authority, lecturer, panelist and is also a member of the American Association of Private Lender’s Education Advisory Committee. He earned a bachelor’s 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.

However, private lenders are known for fast




• Funding in as few as 4 days • Non-owner occupied SFRs, 1-4 units, multi-family & condos • 1, 2, & 4 year terms

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844.899.2522 www.civicfs.com



Real Estate IRAs: Don’t Be Afraid to Start From Scratch Self-directed retirement accounts can own property just as individuals can. by Clay Malcolm


he secret is out: IRAs, 401(k)s and

health savings accounts (HSAs) holding

alternative assets not only allow investors to

prominent—and potentially lucrative—

option for hands-on retirement investors.

A self-directed retirement account can

use their existing business talents but can

own property in the same way an individual

rities when executed well. Among alternative

passive investments like stocks and mutual

consistently outperform publicly traded secu-

assets, real estate has emerged as an especially


can. Unlike employer-driven plans with

funds, self-directed IRAs allow plan holders

to implement their personal preferences

within their retirement strategies. Rental

properties, fix-and-flip projects, and other such opportunities have been popular for retirement and nonretirement investors

alike, but the development of raw land has

flown under the radar as a viable approach.

certain rules that need to be followed to

If I don’t have the money but would

scenarios tend to arise that illustrate

IRA achieve partial ownership?

from personal ones, so let’s review a few

technology and expanded online offerings.

maintain the tax benefits. Common

these rules and distinguish IRA investments

Equity crowdfunding has established itself

I personally own vacant land.

in alternative assets without making five-

residential or commercial structure? No. In keeping with IRS rules pertaining

your risk tolerance, identify a piece of land

that best suits your needs and contact your IRA provider to arrange payment for the

acquisition. You may then hold and flip the property once it appreciates, lease the land

to a business, develop an income-producing improvement to the property or direct your

investment in another direction as you see fit.

Rules to Know While tax-advantaged accounts can invest

in the same assets as a person, there are

connect investors with up-and-coming

companies, but real estate equity can be

your IRA. The same is true of the reverse

equity shares purchased via crowdfunding

you may not use your own money to fund

retirement plans.

you own personally may not benefit from

dance with the Internal Revenue Code (IRC),

relationship; if your IRA owns raw land,

are perfectly allowable in self-directed

Are there any key distinctions with

hands that IRA investors must avoid. Plan

commercial property?

physical development, repair or other

know about the possibilities for residential

by their IRAs. This may prove particularly

exist for retirement investors interested in

ment, as investors may be drawn to such

a piece of commercial property for sale or

expertise. To develop a piece of IRA-owned

you could with personal funds. As the IRA

from the IRA in the same manner as

ities like collecting rent payments, provided

holders are unable to provide services—

You could perform due diligence to satisfy

or six-figure commitments. Many issuers

acquired using similar platforms. In accor-

Personal funds aren’t the only helping

tent with that of a personal investment.

as a way for prospective investors to dabble

to self-dealing, a piece of raw property that

a development project there.

Self-directed IRAs can obtain vacant

Yes, all thanks to recent advances in

of them here:

Can I use my IRA funds to build a

property through a process that’s consis-

rather avoid debt, can my

Those familiar with real estate probably

such upkeep activities—to an asset owned

properties, but those same possibilities

challenging in the context of land develop-

commercial property. Your IRA can develop

projects because of their construction

rent to another business or entity just as

land, any costs would have to be paid

holder, you could oversee key business activ-

other expenses.

your personal money never commingles

If my IRA doesn’t have partners or the cash it needs, can I still close a deal? You can overcome a capital deficiency

with income from the IRA-owned asset.

Could my IRA finance someone else’s development project? If real estate isn’t your forte, your IRA

or boost your IRA’s purchasing power by

funds could finance another investor’s

non-recourse loan, the personal funds or

the property itself, your IRA would collect

as payment or security on the note. The

Depending on the flexibility of your IRA

only collateral involved in this model.

secure the note, qualify prospective borrow-

acquiring non-recourse financing. With a

endeavor. Instead of earning income from

assets of the IRA holder may not be offered

interest on the loan that “built” the property.

IRA-owned property itself would be the

provider, you would have the freedom to


ers to your satisfaction, and decide on the

is the separation of personal money (or that

incorporate multiple owners and investors.

This can attract investors and borrowers

Because IRA income bears considerable

of a vacant lot and your IRA could own the

such money never ends up in the investor’s

could arise in this instance:

interest rate, term and payment schedule. alike as entrepreneurs avoid the hassle of groveling to banks and waiting weeks or months for the money they need.

When acting on behalf of my IRA, can I collaborate with whomever I want? IRA investors are restricted from con-

of near-personal people) and IRA money. tax advantages, the IRS is adamant that

pocket before distribution from the IRA.

Conversely, an IRA holder may be tempted

to write a personal check for an emergency

expense, but this is equally disallowed. Any and all income for IRA-owned investments must return to the plan, while any and all

ducting business with certain individuals.

expenditures inherent to said assets must

work with friends, family or anyone else you

could involve full or partial distribution of

They could work as property managers,

significant tax consequences for the holder.

to improve or uphold the property. Perhaps

isolate personal matters from retirement

For example, your spouse could own half

other half. Here are a few situations that

I f you were to sell the lot in full, half of the proceeds would go to your spouse

and the other half would go to your IRA. The same is true for any other income derived from the asset.

I f you want to sell your IRA’s half but

your spouse wants to keep his or hers,

If you buy land with personal funds, you can

be paid by the plan. Prohibited transactions

trust to make the most of your investment.

the retirement account, which may result in

business partners or perform other services

It would therefore behoove investors to

I f you and your spouse elect to develop

they could provide income if they need a

business whenever applicable.

to be paid equally to reflect even

tenants. These options may not be available

Can I ever work with disqualified

finance the entire project alone, nor

trustworthy landlord and you need reliable to IRA investors. Per the IRC, an IRA or its

persons on the same investment?

among others, direct family members

an investment, there are ways to involve

holder may not yield direct benefit from, (parents, children, grandparents, etc.), their spouses, any fiduciaries to the IRA and the plan holder him/herself. Qualified

persons include non-direct

family members (siblings, aunts/

uncles, etc.) and

friends or business partners without

direct ties to the IRA.

The primary concern

surrounding disqualified persons


When determining a course of action for yourself, your IRA and your disqualified persons if you so

choose. The separation of money is more

important than

ever when you

you may do so provided you, your

spouse or any other disqualified person isn’t the buyer.

the raw land, any expenses would have ownership. One or the other could not could they pay any more or less than their percentage of equity.

J ust as you couldn’t pocket IRA money for yourself, your spouse could not

accept any portion of income attributed to your IRA’s ownership percentage. In other words, your IRA’s slice of the pie could never be received or retained by your spouse.

As you can see, you may conduct IRA

business in tandem with a disqualified person if handled properly. By titling

everything correctly and maintaining

separation between personal and retirement

money, adding trusted business partners

can help alleviate the stress of day-to-day

activities and strengthen your investment

as a whole.

Building Your Future Retirement These additional factors may seem daunt-

ing when weighing the pros and cons of

personal investments and IRA investments,

but a quality IRA provider can provide

critical guidance for uninitiated retirement

investors. The IRS mandates that all retirement plans remain in the custody of a trust entity or third-party administrator. These companies help navigate the waters

of the IRC so their clients can keep their focus where it belongs: The opportunity

to build a strong retirement portfolio with successful investments.

Just because you’re literally working from

the ground up doesn’t mean you should be intimidated by a pre-developed land

investment. Even before (and if) you elect to construct a residential or commercial

building, the state-specific cost of holding


diate factor. That being said, the potential

Clay Malcolm is the chief development officer at New Direction IRA, Inc. a self-directed IRA provider that assists more than 12,000 clients nationally. He oversees most avenues of marketing, teaches continuing professional education and informal classes and webinars, and facilitates the training of business development and client representative teams. Malcom, who has more than 20 of years management experiences in various roles, draws upon his teaching background to develop the educational aspects of New Direction IRA and impart knowledge about self-directed IRAs to its clients and prospective clients. Malcolm received his Bachelor of Science degree in communications from Northwestern University. www.newdirectionira.com/education.

pre-developed property could be an immereturns in these types of investments are

certainly worth considering. Throughout the investment world, business-minded

folks have historically earned the most by

building a quality something from a relative nothing. Self-directed IRAs embody this

spirit by empowering investors to take con-

trol of their retirement and build the future they envision for themselves. These two

financial vehicles working in concert can

allow investors to combine profitable assets

with the tax benefits provided by retirement plans. As global events continue to dictate

the financial landscape, exploring any possible edge in the alternative asset arena could pay off in a big way. â–



The Impact of Severe Weather on Real Estate Prices National trends provide some answers, but every local market is different. by Mark Melikian


redicting real estate prices can be like predicting the weather. We can analyze all the major national trends, see where the

cold and warm fronts are moving, and guess what the impacts will be for the local markets, but we can never be 100 percent sure.


The same is true for real estate. National macroeconomic trends

definitely impact local markets, but each neighborhood is different.

Some are better protected from trends that might negatively impact others. Prices in one market can react quite differently than in

another, even when the macro-economic trends impacting them are the same. As any broker will tell you, when it comes to real estate, every local market is different.

The one time this may not be as true is when major weather patterns

impact regional real estate markets. There are no weather patterns

more major, at least in our hemisphere, than the Atlantic hurricane. The season, which began June 1, 2017, started rather weak with a

Insurance will fund the rebuilding of many impacted neighbor-

hoods, with flood insurance providing up to $250,000 in rebuilding costs and more money on top of that to replace belongings. When

the new homes are complete, they will have the benefits of current

construction technologies, and in time could be more valuable than

the existing homes would have been under the same circumstances. Unfortunately, most of this insurance coverage will support

series of smaller storms that gave many a false sense that the season

rebuilding of commercial and multifamily dwellings. Normal resi-

(TSR) Consortium at the University College London wasn’t as certain.

when they take out a mortgage, doesn’t cover this type of event.

would end without any dangerous weather. The Tropical Storm Risk Its preseason outlook, which it issued December 2016, called for 14

dential hazard insurance, the kind most people are required to buy In fact, according to The Washington Post, less than 20 percent of

named storms, six hurricanes and three major hurricanes.

the homeowners living in the eight counties most directly affected by

seven hurricanes, a Category 1, two Category 2s, one Category 3,

analysis of Federal Emergency Management Agency (FEMA) data.

Since the season began, we’ve had seven named storms and

two Category 4s and two massive Category 5 hurricanes, Irma and Maria. Irma was among the strongest hurricanes ever recorded

outside the Caribbean Sea and the Gulf of Mexico. It smashed into

Harvey had flood insurance coverage. That result came from the Post’s The rest of the homeowners will rely on the government for

support or be forced to use bankruptcy law to protect themselves

the Florida Keys as a weakened version due to its impact with Cuba. Two weeks later, Maria surpassed Irma to become the most intense hurricane of the season by central pressure, but was later reduced to a tropical storm.

A Category 5 hurricane is a very dangerous storm, but the

hurricane that devastated the most real estate so far into the season

was the Category 4 storm Harvey. It was the costliest storm of the sea-

son, doing approximately $190 billion in damage. It was the first major hurricane to come ashore in the U.S. since Hurricane Wilma in 2005. Hurricane Harvey did more damage than hurricanes Katrina

and Sandy combined. In the process, it destroyed the lives of the

thousands of people it left in its wake, even those who were insured. Its impact on the value of the land itself is not likely to be extreme,

WITH A CLICK OF A MOUSE See Every Investor Deep Dive Every Deal Monitor Every Competitor

however, at least not in the long term. There are a number of reasons this is true.

Insurance and Government Funds Will Be Leveraged to Rebuild According to Reuters, the insured damage Harvey caused will

run just north of $20 billion, making it one of the 10 costliest storms ever to hit the U.S. As you would expect, this has already taken a

toll on insurance company stocks, but this loss is not large enough to threaten that industry.




from mortgages on homes that no longer exist. Fortunately, there

At the time of publication, we still didn’t have a good idea of

is aid available. Federal grants for disaster victims can be used for

the total amount of financial and other aid donated to support

also be available, including rental payments and grants to replace

hundreds of millions.

temporary housing or emergency home repairs, and other aid could personal property. Government efforts that will have the most

impact on future property values are its grants to make damaged

dwellings safe, sanitary and functional and its low-interest loans. Not everyone will stay, but if they choose to rebuild, there are

resources available to help them do so.


Less than 20 percent of the homeowners living in the eight counties most directly affected by Harvey had flood insurance coverage.

victims of Hurricane Harvey, but the final tally will be in the

Even so, there can be no doubt that some residents will leave.

Many of those who never expected a hurricane to make landfall and

blow away their homes and personal items will not face the same risk again. But for every person who moves away from the water, many more are waiting to take their place. It’s the single biggest reason property values rebound in the wake of every major storm.

Why Flood-Prone Properties Will Always Hold Their Value The last time we wrote about the impact of natural disasters

on property values, we were considering the potential impact of the Zika virus on property values in Florida. We predicted that

any negative impacts would be short-lived, and it appears there

were few impacts at all. Nevertheless, it is important to ask these

questions, especially if we are in the real estate business.

There can be no doubt that flooding will have a short-term

impact on the price of real estate, but how severe it will be and how long it will last are difficult to estimate. The research indicates

Americans Are Ready to Help Victims Get Back on Their Feet For some, rebuilding will require a more hands-on approach.

there is no norm and that a storm that does a great deal of damage can have a very short-term negative impact in real estate values in one community, while the impact could last longer elsewhere.

They will pick themselves up, as they always do, and begin to clean

This is the local nature of real estate again.

new disaster, Americans seem more willing to offer a helping hand,

Candy Evans did a nice job on an analysis she published on her

up and reconstruct their lives. But they won’t be alone. With each

What can we say with certainty? North Texas real estate pro

and a check.

blog, CandysDirt.com. Her research indicates that property values

high-profile stars step up to draw more attention to these disasters,

effect will not be permanent. This fits well with my experience.

the end of August, American businesses had pledged more than

but it could take a while. It could be eight years or more for some

companies had donated $1 million or more.

rebuilt. But if the property is within a short distance of water, it

Samaritan’s Purse are sending in relief workers to help with the

and we feel better when we live in close proximity to it.

floodwaters have receded. These are being added to the ranks of

London has suggested “that our ancient ancestors were devotees

It may be social media’s impact or the fact that the media and

but consumers and businesses are stepping up to help out. As of

$157 million to relief efforts, according to CNN. Sixty-nine of those Meanwhile, nonprofit organizations like The Red Cross and

cleanup and prepare the ground for new construction, now that the construction industry workers that have descended on the area.


will fall from 10 to 30 percent in the wake of a major storm, but the How long will it take for prices to recover? That varies as well,

storms. Some properties destroyed by Katrina still haven’t been will very likely be rebuilt. It’s human nature to seek out water,

Neuroscientist Michael Crawford of the University of North

of the sea, and that their devotion paid off by allowing the human

species to develop large and complex brains.” His ideas were

addition, you will have many borrowers to choose from and

University, who was pondering online why she felt so good

government aid.

shared by Meredith F. Small, an anthropologist from Cornell during a seaside vacation.

It’s not just academics who realize that property with an ocean

view is intrinsically more valuable to humans. Any study of real estate will show that the more expensive properties, when the

the possibility that the homeowner could also tap some

Like every real estate deal you invest in, underwrite carefully.

However, this is one time when it may be profitable to run toward trouble when everyone else is running away from it. ■

structure of the house and other variables are comparable, will be those closer to water.


The Bottom Line for Real Estate Investors

What does all this mean for private lenders? From my perspec-

tive—and as long as you don’t take this as advice since the specifics

Mark Melikian is chief valuation officer for Summit Valuations, where he oversees the performance and training of the quality assurance team, product development, and is the company’s valuation expert. He can be reached at mark.melikian@summitvaluations.com.

of each real estate transaction differ—it may mean that if you’re

looking to lend in areas where properties are likely to appreciate

greater than the overall market in a decade or less, consider lending in communities that have fallen prey to recent hurricanes. In

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How to Reduce Losses Through Active Forbearance This alternative can provide a win-win situation for all parties involved. by Bobby Montagne


renovation projects and collaborating

Why Use Active Forbearance?

jerk reaction of many private lenders is to

causing delays and cost overruns.

Forbearance to avoid foreclosure.

expensive process in most jurisdictions that

lender can exercise its first lien position and

up in a project, you don’t have it to lend to

Active Forbearance offers an alternative

can then finish the project, market and sell it,

obligations to pay your investors regardless of

possible, the lender may also return a portion

borrower. Vacant properties tempt vandals

foreclosure only if the borrower is unwilling to

depress values for surrounding properties.

hen a borrower’s renovation project and loan payments stall, the knee-

initiate foreclosure. That’s a lengthy and

ends when the lender takes back the property. route that can get a borrower’s renovation project back on track, get the loan reinstated and

with the borrowers to solve the problems If there’s no way resolve the problems, the

take over as general contractor. The lender

and pay off the loan with the proceeds. When

There are three reasons to use Active First, it’s smart. When your money is tied

someone else. Aside from that, you have

the challenges you face with the property and

lead to a profitable resolution for all parties.

of the borrower’s equity. The lender pursues

and thieves, and foreclosure sales typically

involves stepping in midstream on stalled

agree to the forbearance agreement and terms.

Both can harm surrounding property values.

A good Active Forbearance process



Second, it’s moral. It may fly in the face

it gets to market and your loan is repaid.

of being a for-profit lender, but we think it’s

When a borrower runs into trouble and is

before resorting to foreclosure. The borrow-

keep making payments.

somewhere. They can go to a lot of seminars

not getting the property back to sell any time

experience because every deal is different.

state. If you can keep the project moving

morally right to try Active Forbearance

ers who are new to the business have to start and read books, but nothing can replace

Sharing experience and expertise with

others grows a better client base. Keeping projects on track helps develop business

people who are loyal to you and better at flipping houses, which reduces your risk next time you lend to them.

Third, it’s practical. The more quickly you

financially stressed, they’re not going to

You’re not getting payments, and you’re

soon, especially in a judicial foreclosure ahead, you avoid foreclosure.

Active Forbearance produces win-win

results, as lenders can return capital to investors and borrowers as:

T  hey know more about successfully renovating and selling properties.

get the property back on track, the sooner

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T  hey have equity from the original deal to fund a new project.

T  he lender-borrower relationship remains intact.

T  here’s no foreclosure “black mark” on the borrower’s record.

Active Forbearance at Work Surprisingly, it’s not poor credit that

tends to cause defaults in private lending.

The two most common reasons borrowers

and projects run into trouble are:

1 A lack of construction experience. 2 An  inability to stay on top of the many tasks involved in renovation projects.

A lender who has been in the trenches has

the unique skills and insights to help rehab-

bers succeed. They can show borrowers how to avoid mistakes, share best strategies on

Here’s an example of active forbearance

After more weeks went by without permits,

in action. It shows how things can go wrong,

Jim was frustrated by the very slow pace of

An experienced and repeat renovator, who

They had several meetings at the property,

even for seasoned flippers.

the project and went looking for solutions.

vetting vendors and suppliers, and provide

we’ll call Jim, bought a house at a substantially

within budget. They have contacts, know the

coming Washington, D.C., neighborhood.

a job isn’t usually smart or cost effective,

ultimate power to make or break a project.

tor to perform the work, teamed up with a

helped Jim bring in new, more seasoned

construction draws, so they notice when

contemporary floorplans and, ultimately,

insight on key methods to stay on time and local players and understand who has the They’re in and out of projects overseeing

deadlines start to slip. When that happens,

undermarket value in Eckington, an up-andJim selected a well-known local contrac-

skilled architect to produce streamlined and

and discussed the best course of action.

Changing contractors in the middle of

but in this case, it made sense. The lender contractors who pulled permits quickly.

Jim also agreed to put the high-end design

started demo.

elements back in the plan.

nications that clearly define what’s going

ule due to permit delays. In response, Jim

agreement that:

do to get the renovation back on schedule.

that could negatively affect the exit price.

they step in and begin a series of commu-

wrong and what they expect the borrower to

Fairly quickly, the job fell behind sched-

decided to cut costs. He made design changes

The lenders created a forbearance Extended the loan term and increased the loan amount to allow for cost overruns.

Stipulated monthly payment procedures. C  alled on Jim to pay an extension fee

and contribute additional money into the project.

A mended Jim’s LLC to appoint the lender manager of the project (allowing the

lender to manage the contractors, increase the construction budget, if needed, and oversee the sale of the home).

The agreement also stipulated that the

division of proceeds would be disbursed in the following order upon sale of the house: costs, i.e., real 1 Transaction  estate commissions. of all property obligations 2 Repayment  such as loan pay off, taxes and utilities. 3 30  percent of profits to be paid to Walnut Street Finance. profits to be paid to 4 Remaining  the borrower. The new contractors had the old work

fixed and inspected, and made some positive


design changes to the interior and exterior. Within six weeks, the project was finished and under contract to sell.

In this case, the market moved with the

the business, those dreamers are inevitably going to hit some rough patches.

When that happens, a lender has two

options in the way they choose to approach

project, and the exit price was even higher

the situation. The first is to immediately

nearly as much profit as he had originally

the foreclosure process. The second option

moved on to his next project.

lenges. Replacing the adversarial foreclosure

forward for those traditionally ignored by

ing people grow their construction project

than projected. After the sale, Jim had

claim that the loan is in default and begin

planned, there was no foreclosure, and he

is to work with the borrower to resolve chal-

Private lending provides a pathway

banks. Entrepreneurs with skills and the

determination to work hard can turn a profit by rehabbing old properties. As they learn


process with Active Forbearance and helpskill just feels a lot better. ■

ABOUT THE AUTHOR Bobby Montagne is the founder of Walnut Street Finance, a leading private lender in the mid-Atlantic and member of the American Association of Private Lender’s Education Advisory Committee. Walnut Street Finance is the sponsor of the Walnut Street Finance Fund II LLC, a $30 million private lending fund offered under SEC Rule 506. It allows investments as low as $50,000 and provides a preferred dividend of 9 percent with no fees. The fund sponsor is Walnut Street Finance, a developer and private money lender with more than two decades of experience. The loans in the fund’s portfolio are generally short term—one year or less. All loans are collateralized by the underlying properties, and each borrower provides equity of 15 percent to 25 percent the property’s value. This article does not constitute an offer to sell, a solicitation to buy, or recommendation for any security.

Need funding? Find an ethical lender AAPLOnline.com/Member-Directory

LET’S TALK PRIVATE LENDING Members of the American Association of Private Lenders are the trend-setters in private real estate lending. From their voluntary adherence to a Code of Ethics to their knowledge of the private lending process, they are the gold standard for the industry. JOIN AAPL TODAY!


913.888.1250 NOVEMBER/DECEMBER 2017 35



TOOLS FOR REACHING NEW HEIGHTS Anthony Gera ci sh ares his motivations, how he’s been able to grow his ventures and create a strong lega c y. by Heather A. Elwing




“What motivates me

is that I get to work with my friends, and together [we] get to

achieve something bigger than myself,” said Anthony Geraci, managing shareholder

in charge of vision and culture at Geraci Law firm.

Private Lender: When did you establish your companies, and where did the ideas originate? Anthony Geraci: The idea to start the firm with my partner Christina came from serving the ever-growing private lending market. I believed we could deliver services better and cheaper than any other law firm. Our media and consulting divisions started in 2016 to serve the additional private lending needs of deal flow and capital raising. What was the biggest challenge you faced while setting up and running

He never expected he would get to where he is now. Growing up with not much money, Geraci knew he had to work hard to ensure his life had purpose and to eventually reach his own definition of success with those he holds closest: family, friends and colleagues. Geraci’s journey began gaining momentum after he received his bachelor’s degree in history from Auburn University at Montgomery. He went on to earn his Juris Doctor from Chapman University School of Law. When he took his first position at a small

the law firm? How did you overcome those obstacles? The biggest challenges have had to do with me. Even though I’ve been a manager since I was 17, I had never run a company before. This also was during times of huge growth for the firm. I first had to learn how to work with a team to achieve our common goals. Then just three years ago, due to growth, I needed to form a management team and then learn how to use them.

firm that practiced private lending law, he

In Originate report, in the letter

was hooked. In 2007 he and his partner,

from the editor, you state you want

Christine Geraci, opened their own firm.

the magazine to be the Playboy

This year they celebrate their 10-year busi-

magazine of the loan origination

ness anniversary. What a decade it has been

industry. Do you have a plan to

for them—from the growth of their practice

make this industry sexy?

to the launch of their magazine, Originate report, and the Geraci’s Speaker Series. Private Lender sat down with Geraci to discuss his motivation, leadership and how he’s been able to grow his ventures during the past 10 years.


I think the returns are already sexy! What I meant by that is I want Originate report to be read for the articles like Playboy. Historically, Playboy had award-winning, cutting-edge articles that were enjoyable to read and were

just as newsworthy as mainstream media. We want the same as it pertains to the loan origination market. What is your philosophy and vision for your conference series? To add value every way we can. It’s not just our vision and philosophy for the

conference, it’s our vision and philosophy

My greatest achievement is my personal

of our firm. We want to help our clients do

growth. I think the greatest search anyone

business together in frictionless settings

can do is to get to know who they are,

where they can maximize their time and

be comfortable with that and fully accept

do business together.

their flaws as well as their strengths.

What do you feel is your greatest achievement so far?

Then they can be at peace with themselves. I get closer to achieving that goal every day.

What are some of the things you enjoy most about what you do? I’ve always enjoyed teaching and coaching. I get to mentor our team and teach them everything I’ve had the opportunity to learn. I get such a thrill out of seeing them grow and seeing how they take that seed and



make it grow into a huge tree. And for me, to see the impact I have on the lives around here takes my breath away. Marcus Aurelius said, “What we do now echoes in eternity.” We all have our rough patches. What are a few things you tell yourself when the chips are down? Bob Parsons has had an immense impact on my life. He wrote “16 Rules for Success in Business and Life.” When times have been especially tough, I read two of his rules. In the first, he says: “Very seldom will the worst consequence be anywhere near as bad as a cloud of ‘undefined consequences.’ My father would tell me early on, when I was struggling and losing my shirt trying to get Parsons Technology going, ‘Well, Robert, if it doesn’t work, they can’t eat you.’” If it doesn’t work, they can’t eat you. In the second rule, he reminds us that no matter

“ We want to help our clients do business together in fric tionless set tings where they c an m aximize their time and do business together.” -Anthony G era ci


how difficult the situation, you can get

Personally, I admire Swami Parthasarathy

through anything one day at a time. I would

and Ajahn Brahm. I have grown so much as

even shorten it to say you can get through

a person due to their writings and speeches.

anything one minute at a time.

They have provided the personal guidance

Was there ever a low point when

I have needed to move to the next level.

you almost called it quits? If so,

Do you have any daily rituals that

did this influence the eventual

help you grow as an entrepreneur/

writing of your article about grit

business owner?

that appeared in the inaugural issue of Originate report?

grew up poor and without anything, and I

feeling gratitude. By this time, my kids wake

wanted to make sure I didn’t stay that way.

up and I spend time with them, take them to

There’s a certain peace and calm in not

school and then get into the office. If you could offer one piece of advice to other entrepreneurs, what would it be? Have passion for what you do. You’re going

It’s one by Marcus Aurelius: “It is not death

to fall, and fail, often. Even if it works out

that a man should fear, but he should fear

the first time, it won’t stay that way.

never beginning to live.” There are variants

Continue to invest first in yourself, then

of this quote everywhere, but if it has to be

in your business. Only if you grow can

summed up in two words, then “carpe diem,”

your business grow.

or “seize the day.” It’s an important reminder that all time is borrowed. I must remember to live life like there is tomorrow, because one day there will be no tomorrow.

for motivation or inspiration? As I noted previously, I grew up poor. I keep a $1 food stamp from the 1990s on my desk. It’s a reminder of where I came from. It’s also I don’t continue to put in the work.

I need to get done. Then I spend 10 minutes

What is your favorite quote and why?

your life that you reflect upon often

a motivator for me of where I could end up if

never have I thought of calling it quits. I

so I better not fall.

Are there one or two moments in

morning and start off exercising. Afterward I’ll create a to-do list of my top three things

and nothing to catch me on the way down,

every week, every month and every year.

I get up between 4 a.m. and 5 a.m. every

I’ve had many low points in my life. But

having a safety net. If you fall, there’s no one

are the result of doing the work every day,

Surely many individuals look at you and think, “There is no way I could accomplish as much as he can, even though I am trying!” If

Who are the individuals you admire,

you could tell others one thing,

in business or in life? And why?

what would it be?

In business I admire Richard Branson,

Two things. First: kaizen. It’s a Japanese

Verne Harnish and Gary Vaynerchuk. They

concept which to me means small daily

have impacted my professional career many

improvements lead to a lifetime of results.

times over, and I have given Verne credit for

Everything builds on the previous work

the inspiration behind our current business

done and is a reminder that everything

expansion. He’s a great person to talk with

can be improved. Second: habits. Accom-

and learn from.

plishments aren’t the result of luck. They

If you could be anywhere in the world right now, where would you be? Sicily. I would like to have a place there or in Venice. Italy is absolutely beautiful, and I am second-generation American coming from Italy. What do you think you would be doing if you hadn’t decided to take the path you are on now? I don’t know. I don’t spend too much time thinking about things, and I don’t regret where I am in life. I did apply for the Naval Academy and made the final cut but was likely not selected because of my vision. At the time, they only accepted 35 percent of applicants who needed to wear glasses or other vision items. If I did qualify, likely my life would be completely different today. ■ ABOUT THE AUTHOR Heather A. Elwing is editorial manager for Private Lender and editorial assistant for Think Realty Magazine. She is a licensed Realtor in Missouri and holds degrees in journalism and public relations. She is dedicated to the education of those interested in private/hard money lending and real estate investing.




Private Lending and Technology Are we ready for peer-to-peer lending? by Harry Singh


he private lending market has been

A government that wants to slow down

around for as long as there have been

the supply of mortgage funds available to

events. And, it’s natural for every borrower

down the amount of borrowing) may look

when it comes to borrowing money.

by imposing additional guidelines or by

unforeseeable circumstances and major life to expect the lowest possible rate and fees

Traditional Lending Model Traditional banks generally are the cheap-

est sources of funds for borrowers. They can

do this thanks to the rock bottom yields they

provide to their investors in return in the

name of security, which in Canada originates

borrowers (an indirect measure to slow

to restrict or limit the securitization activity imposing a maximum ceiling on what an institution can securitize. The measure

would slow down the supply of credit and indeed reduce competition, which would

put upward pressure on the cost of borrowing for borrowers.

The Canadian governments have, over

from depositor insurance provided by Canada

the last nine years or so, been grappling

Federal Deposit Insurance Corporation in

rates needed to be kept low while keeping

Deposit Insurance Corporation and the

the U.S. Additionally, it is easier for banks

to securitize mortgages, at least in the U.S., where the capital markets are a lot more robust than in Canada.

The concept is quite simple: raise capital

from depositors like you, pay minimal return on the deposits with minimal risk, lend the

with a unique situation where the interest the consumer debt to income ratios and

boisterous real estate markets in certain

parts of the country in check. The Canadian government using its watchdog, the Office

of the Superintendent of Financial Institu-

tions (OSFI), chose to restrict the mortgage credit availability through a progressively

funds at higher rates to borrowers, pool the

tighter set of guidelines that have shifted

via third parties to investors to replenish the

previously would have been funded through

mortgages into portfolios and then sell them capital. Well-capitalized financial institutions with large and deep balance sheets are diversified, while institutions that are not as well

capitalized run the risk of restrictions on the

a significant share of the business that banks, alternative institutions over to

Mortgage Investment Corporations (MICs) and private lenders.

Private lenders and MICs have previously

securitization process or viability. This may

funded a relatively insignificant portion

tization model, but it captures its essence.

in the Canadian market, but over the last

perhaps be an oversimplification of the securi-

of the overall mortgage credit outstanding



to narrow the universe down to one to

three private lenders, which precludes the borrowers from truly benefiting from

competition among various lenders.

Time for P2P Lending? As we approach 2018, technology

undoubtedly will shape the landscape and an age-old business like private lending

will undergo tremendous change. Consumers, with the availability of information

on the internet, are much better informed regarding trends and opportunities.

Peer-to-peer (P2P) lending is around the corner. Sites are starting to pop up that facilitate lending from one person to

another, cutting out the middlemen and creating a process that is both cheaper

for the borrower and more lucrative for

the lender. The predictable and ongoing obstacle will be regulations in the name

of protecting the public; however, the

regulatory framework around Uber and

bitcoin are classic examples of how market nine years, private lenders and MICs have

down payment. The cost of marketing to

efficiency will prevail in the end. Predict-

Coincidentally, the increase has aligned

resultant borrowers may not fit a private

bank in North America is chasing fintech

regulations imposed by OSFI. Indeed, the

private lenders and MICs in Canada choose

noticed a dramatic increase in their portfolios.

ultimate borrowers is expensive and the

ably, it is not an accident that every major

with the introduction of credit tightening

lender’s requirements. For this reason, many

investments and acquisitions, as they too

number of private lenders and MICs has also

to deal with mortgage brokers.

is plenty of business for private lenders and

vet the borrowers and in turn match them

rather inefficiently.

the assumption is that brokers will be

ing skills of an average person in under-

as they tend to be not as straightforward

lending. However, with bottom of the barrel

over, the number of private lenders in any

and volatility of mutual funds, investors are

track of. Most mortgage brokers will tend

and perhaps the same logic might prevail

noticeably increased in Canada. While there MICs in the market, it continues to be done Private lenders that are focused on

dealing with the ultimate borrowers find it challenging since borrowers generally do

not know whether they are a fit for a given

private lender, let alone the gap that needs

to be filled regarding rates, fees and equity/


The idea is that a mortgage broker will

see the writing on the wall.

Practical Challenges One of the more practical challenges of

with a suitable private lender. Of course,

P2P lending focuses around the underwrit-

knowledgeable regarding private mortgages

standing the risks versus rewards of private

as a cookie-cutter prime mortgage. More-

returns on savings, retirement saving funds

marketplace is an elusive number to keep

hungry for stable yield. At least in Canada,

in the U.S., as more quality business shifts from traditional lenders to private lend-

ers, investors can have higher yields while

reduce costs for borrowers while enhancing the yield for investors.

From an innovation perspective, 2018

tion through property valuations and other ancillary services that further enable an investor to lend. ■

taking on risk that their banks would have

will be an exciting year, in terms of both

forcing them not to do so for reasons other

mortgage lending. With record breaking


starve for yield, the macro environment is

Harry Singh is the founder and editor in-chief of Private Matters Today, the leading magazine for Canadian mortgage professionals in the private lending and investing arena. Harry is also the president and CEO of Indigoblue Mortgage Investment Corporation. For more information, contact harry@indigoblue.ca

gladly accepted if it were not for a regulator than credit risk. Additional credit/lending education and perhaps use of cheaper but

knowledgeable underwriting hubs could be a solution that may also solve the problem of needing a license in some jurisdictions

unsecured lending and secured private

bank profits and margins while investors very conducive for P2P lending models.

The private lending world naturally lends itself to such a model, as does unsecured

to deal in mortgages. Effective web mar-

lending, which tends to be a much smaller

across the country—so that investors/

marketplaces that facilitate P2P lending

ketplaces that amalgamate business from lenders can in real time peruse available

opportunities—will be highly effective and

ticket item in terms of dollar amount. Web models will be sought after, particularly

ones that build an element of risk mitiga-

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Securities and Exchange Commission Moving Forward on Standard Fiduciary Rule Harmonizing their rule with DOL is a priority. by Melissa Lucar


fter Republican lawmakers pushed hard for a postponement of implementation,

the U.S. Department of Labor (DOL) proposed a delay to the applicability of certain fiduciary rule conditions until July 1, 2019, namely, the Best Interest Contract exemption, Principal

Transactions exemption and PTE 84-24 (insur-

Tim Scott, R-S.C., told Clayton that the DOL

fiduciary rule has had a “negative impact” on

many Americans and that the restrictions the rule places on financial professionals makes

it harder for average Americans to get access to financial advice. While Scott said he was

“pleased” that the DOL decided to delay imple-

ance and annuities). The DOL also issued

mentation of their rule, he also said, “The last

PTEs’ prohibitions against class action

to get experts out of the households, which is the

non-enforcement relief from the related

waivers and qualifications.

Work With DOL In the latest development, the Securities and

thing we need to do at this point is to find ways

unintended consequence of the fiduciary rule.”


Investors must have a choice so they aren’t pushed into a narrow set of circumstances because of whatever steps we take.

Clayton responded to questions about his

agency’s coordination with labor by thanking Secretary of Labor Alexander Acosta for

of person they’re dealing with and they know

“reaching out to say we should work together on

the obligations owed to them.”

with the DOL on finalizing a harmonized rule.

of consistency in any rulemaking saying, “If you

senators about the plan and laid out the four

Four Steps Proposed

facing the same person—a retirement account

on a harmonized rule.

reviewing the public comments regarding a

be consistency with respect to those accounts.”

advisors on the effects of the DOL rule and

state regulators are working in coordination

the agency planned to work with the DOL to

dards of conduct” regulations. Clayton closed

fiduciary rule. ■

bogged down in regulations issued by multiple

agency is proposing in implementing a new


Exchange Commission (SEC) announced that a standardized rule is their top priority, and

harmonizing their rule with the DOL is high

on the agenda. SEC Chairman Jay Clayton told steps the agency will take in pushing forward During a Senate banking committee

oversight hearing on Sept. 26, lawmakers

were eager to hear from the chairman on how ensure that financial professionals are not

agencies. Sen. John Tester, D-Mont., asked

Clayton pointedly when he believed a fully

harmonized rule would be released. “This is a priority for me. Everything can’t be a

priority for me … but we’re pushing this one,” responded Clayton.

this.” He went on to commit to working together

According to Clayton, the SEC is now

request for investors’ opinions and financial what is expected moving forward on “stan-

Third, the chairman stressed the importance

have two different types of accounts, but you’re and a nonretirement account—there ought to

Lastly, he stated that the SEC, the DOL and

to devise a way forward with a standardized

the hearing with describing the four steps the

fiduciary rule.

First, Clayton said, “Investors must have a

choice so they aren’t pushed into a narrow set of circumstances because of whatever steps we take.”

Second, he stated that there must be clarity

in the rules, so that “investors know what type

Melissa Lucar, Esq., is an associate attorney in the Securities and Corporate Department and focuses her practice on helping clients raise capital via private placements offerings and other alternative investments. Melissa also ensures compliance with all applicable federal and state securities laws and advises clients on how to organize and structure their business. NOVEMBER/DECEMBER 2017 47


Realizing Entrepreneurship While Serving My Country Serving in the Green Berets provided the foundation for my career as a fund manager. by Edwin Epperson


hat does a fund manager look like? And how does a fund manager—a

person who may have hundreds of millions of dollars at their discretion to make loans, secure investments, develop a dream and

capitalize on building trends—get shaped for such a career? To make those kinds of

decisions? This is the journey of one such man, Edwin Epperson, whose military

service established the foundation for what would become his private lending career,

leading him down the path of becoming a real estate fund manager.

Call to Service On Sept. 11, 2001, Edwin D. Epperson III

was working two full-time jobs. Those of us who are old enough to remember can recall exactly where we were that day when we

heard and watched the terrorist attacks. Like many, Epperson felt a patriotic passion rise

from within and answered the call to action of our late President John F. Kennedy: “Ask not what your country can do for you, ask what you can do for your country.”

Private Lender asked Epperson to share

his story.

Photos courtesy of Edwin D. Epperson III.


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Veteran-Owned Business Stats Veteran entrepreneurs are a thriving part of the U.S. economy. Learn about their strengths as well as areas of potential opportunity for growth.


Veteran-Owned Business at a Glance

in Sales Receipts


in Annual Payroll



States with the Most Veteran-Owned Businesses CALIFORNIA TEXAS FLORIDA

Ownership // Veterans owned a larger percentage of businesses in these


industries compared to all other U.S. businesses in the same industries.


States with the Highest


Finance & Insurance


Transportation & Warehousing


Mining, Quarrying, Oil & Gas




Professional, Scientific & Technical Services

<10 employees <20 employees

>20 employees

>50 employees

Source: U.S. Small Business Administration, Office of Advocacy; U.S. Census Bureau Survey of Business Owners; U.S. Department of Veterans Affairs


Veteran-Owned Businesses

$15 BILLION Federal Spending Last Year

Source: National Veteran Owned Business Association 54 PRIVATE LENDER



90.2% 3.6%

to Veteran-Owned


1-4 employees

80.4% 9.8%

& Receipts Attributed


Hired Help // Veteran-Owned Employers & Number of Employees


Percentage of Sales




my mentors, and I met a few others who

doing, how we could make sound investment

my mentors’ leadership and guidance, I

else, and protect our downside, basically

have helped shape my life as well. Through began to educate and train myself on how to analyze loans, understand key metrics, perform underwriting and make sound

decisions by shifting the risk to someone

borrower could rehab these properties and sell them for a profit.

As much as I would like to say I cut my

mitigating our risk. Some of my Green Beret

teeth during those early years of my private

of managing a rehab. It was something they

three loans. My “Ah Ha” moment occurred

buddies had the experience and background

lending career, I can honestly say I did only

decisions for how to invest in mortgages

grew up doing, or they worked with family

he adamantly taught me was to never chase

capital after a short deployment to buy a

and we were taking the fight to several

the upside will take care of itself,” he would

ital to do the rehab. Because we all worked

fighters. We had snuck in that night to our

way through my career (I got way overcon-

only made sense that these men would

and deeds of trust. One of the first things

who did that type of work. They had the

the returns. “Cover your downside, and

small house, but they did not have the cap-

say. I violated that one rule, just once, halffident) and it cost me—big! After studying

for more than a year and reading books and

together, and we all trusted each other, it be my first borrowers.

I would be the deal sponsor and the

attending seminars, I still had a question:

other Green Berets and myself would do a

“Family and friends, Ed, family and

who had the knowledge and experience to

“How do I loan money I do not have?”

friends,” he would say.

So, I went to some friends I served with

in Special Forces. I told them what I was

fractional note to another one of our friends take on a renovation project. We, of course, would be in first position, but we would

get our monthly interest payments and the

in Afghanistan in 2014. We were in the Shah Wali Kot district in southern Afghanistan

enemy strongholds harboring known Taliban attack positions along the side of a mountain and were preparing to assault the first of

what would be many enemy strongholds.

As is often the case, after all preparations were made and positions set, we waited.

We had to wait on our ISR platform (drone) to confirm the target had arrived at the

stronghold. So, as I waited, thinking of home and my two boys, I started to think of my private lending business.

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FEATURE: VETERAN BUSINESS team is only 12 men. Of those 12 men on our

be a fund manager of an international fund.

email with my loan documents to the closing

By the end of the deployment, we were

ber is even now written on a single check I

position loan in two days. â&#x20AC;&#x153;Are you serious?â&#x20AC;?

my resolve to exit the military and turn my

Then it hit me, just 18 hours earlier I was

sitting in front of the computer sending an

agent. We would be closing on another first I asked myself out loud. My buddy John

turned around and looked at me, thinking

I saw movement on the objective. I waved

team, seven would become incapacitated.

operationally ineffective. This only affirmed full attention toward building a private lending business.

him off with a big grin. I had just realized

Full Commitment

private lender. Scalability without regard to

out to California to meet my mentor. We

where in the world. As I sat there on top

to becoming a private lender. He agreed that

one of the biggest benefits to becoming a geography! I literally could do this anyof this 7,000-foot mountain, I began to

dream of sitting on a sailboat in the Caribbean

When I returned to the states, I flew

discussed my desire to fully commit myself I had what it would take, and he voiced his support. That meeting was in July 2014.

typing away on a computer making loans. It

I also told him something that became a

I simply could not see myself staying in the

committing to. I told my mentor that I would

was that night that changed my path forever. military with the freedom that I could now

taste. That assault on the stronghold would end up spanning several days, involve hours and hours of gunfights, and many times I

thought I might not make it out alive. That

deployment was a tough one. A Green Beret


goal, set before I knew what I would be fully

I even gave him an exact number. That numhave framed to remind me of my goal.

By October 2014 I had found a very close

group of private lenders looking to master-

mind and grow through shared experiences. That same month I declined to re-enlist

in the military and was removed from my

team. This was hard, as many of my team-

mates took it as a stab in the back, as if I was violating a sacred trust. I relied heavily on my faith in Jesus, my wife and the master-

mind group for support. Over the next year, I studied and began to learn foundational

best practices for making loans and becoming a deal sponsor who had a reputation of

transparency, honesty and integrity. During



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FEATURE: VETERAN BUSINESS 2015 I sourced, vetted, underwrote and

courses of action just like when we were

closest to me, and established on the truths

quickly and swiftly act to reduce fallout on a

ships. I look forward to continuing to share

originated more than 11 loans. My investor

planning a raid or an assault has helped me

reaching new investors wanting to borrow

loan going bad. And, most importantly, the

database grew by word of mouth, and I was funds every week. In October 2015, I was

honorably discharged from military service,

free to pursue my dream of becoming a world

class private lender, soon to be fund manager.

Lessons Learned and Applied So many of the disciplines and practices

trust that is built between my investors and

myself is akin to the trust built among Green

sponsors. Make no mistake, the business we

Edwin D. Epperson III served in the U.S. Army for 13 ½ years. During his time in service, he deployed to Iraq, Kuwait, Egypt, South America and Afghanistan. He attended many Army schools, which include Airborne, Air Assault, Pathfinder, Combat Diver, Ranger, Special Forces Selection Assessment, Special Forces Qualifications Course, SERE (High Risk), among many leadership courses. During his last years in the military, he began a real estate private funding company.

our business as private lenders and deal are in is not finance—it’s relationships. This article started with a simple

people through some three-letter agency

fund manager, and I may not come from a

Being able to read people has served me very well since starting to do this business. Find-

ing risk and having secondary and tertiary


Green Berets into the financial world. ■ ABOUT THE AUTHOR

question: What does a fund manager look

cross training I was privileged to receive.

my story, and bringing the qualities of the

Berets on a team. Trust is the currency of

of being a Green Beret fit so well into this new life I was creating. I knew how to vet

that all businesses are founded on relation-

like? Well, I may not look like the typical

standard “fund manager” background. But I

know I have the qualities and characteristics of a highly trustworthy individual tested by the fires of war, refined by the loss of those

Resources for Veteran Business Owners Veteran Business Outreach Centers The SBA provides assistance to veterans

SBA Contracting Support for Small Businesses

Institute for Veteran and Military Families

in their local communities through Veteran Business Outreach Centers. The centers

The SBA also offers resources for service-

can help veterans access resources such as

disabled veteran-owned businesses looking

A program of Syracuse University, IVMF

to procure federal contracts.

toward veterans re-entering the workforce or

business training, counseling and mentoring, right in their local communities.

Veteran Fast Launch Initiative From SCORE, the Veteran Fast Launch

Initiative provides mentoring and training,

along with free software and other services,

This non-profit organization connects


mentorship and career advice.

Association is a membership-based program

U.S. veterans to business leaders for

BusinessUSA The BusinessUSA Veterans Resource tool

Veteran Entrepreneur Portal

business owners find the most relevant

vantaged Business Utilization, the Veteran Entrepreneur Portal provides access to a

number of business tools and services, from

is an interactive guide to help veteran

federal, state and local tools to help start

The National Veteran-Owned Business

that advocates for veteran business owners.

The association works as a watchdog to hold the federal government accountable to its veteran contractor mandates.

21 Gun Salute Initiative

and grow their businesses.

The GSA’s program to support service-


includes an action plan aimed at meeting

business education to financing opportunities.

The VA’s VetBiz site provides information

Boots to Business

tion’s verification process for veteran-owned

Boots to Business is another program of the

looking to start their own businesses.

American Corporate Partners

to military veteran entrepreneurs.

A part of the VA’s Office of Small and Disad-

provides a wide variety of resources geared

about the Center for Verification and Evaluabusinesses looking to gain eligibility for the

disabled veteran-owned businesses

or exceeding the goal of reserving 3 percent of contracts to service-disabled veteranowned small businesses.

VA’s Veterans First Contracting Program.


course and an eight-week online course that


Entrepreneurship is an organization that

and other essential elements of early busi-

provides a portal for businesses looking for

SBA. It’s a two-step entrepreneurial training program that includes a two-day classroom

offer instruction on forming a business plan

The Federal Business Opportunities website

ness ownership.

active federal contracting opportunities.

Veteran Women Igniting the Spirit of

provides resources, courses and mentorship to female veterans who have started businesses or are looking to do so.

National Veteran Small Business Coalition

Victory Spark

EBV Foundation

This organization supports veteran-owned

As part of the Global Entrepreneurship

Collective, Inc., Victory Spark is an accelera-

EBV Foundation’s Entrepreneurship Boot-

tor program focused on startups led by U.S.

experiential training in entrepreneurship

small businesses by promoting policies that

encourage participation of veteran-owned businesses in federal contracting opportunities.

military veterans. The program includes a

12-week mentor-driven Lean LaunchPad Program, along with grant funding for entrepreneurs who complete the program.

camp for Veterans with Disabilities offers

and business management to post-9/11 veterans with service related disabilities. List courtesy of smallbiztrends.com NOVEMBER/DECEMBER 2017 59



Spirits Bright Holiday memories & traditions from the Association of Private Lenders staff, contributors & members.

AdaPia d’Errico


What is your most embarrassing holiday moment?

Jeff Tesch I was taking a 38-pound

Abhi My dad told a joke and I laughed so

and landed right on the floor. Did we still

hard that I snorted eggnog.

eat it? Absolutely!

Chris I once went on a holiday trip to a very

Melissa The year my parents put a

had been lost. So, I was stuck wearing the

I was traumatized.

Christmas turkey out of the oven one year. As I lifted it up, it slipped out of my hands

remote area, only to find that my luggage

piece of candy coal in my stocking.

exact same clothes daily for 10 days. When

Nema Being the only person in an ugly

I washed them each evening, I had to sit around a fire in my underwear.

Erica I was born on Thanksgiving, so my

family regularly calls me a little butterball.


My favorite memory was when [my father] bought me a really nice radio that I wanted, even though it had a lot of parts that could break. BOBBY MONTAGNE

Christmas sweater at an Ugly Christmas

Garaci LLP

ar Abhi Golh Summit & Crowne

Linda Hashbrown casserole Melissa Lasagna on Christmas for lunch Mike My aunt’s stuffing (two sticks of butter are required for the recipe)

Nema A sandwich consisting of the following: a well-brined turkey, fresh cranberry

sauce, stove top stuffing (real stuffing is for

suckers), brioche roll and fresh-made gravy. Sohin: Dosa

Sweater party. Not cool.

Susan Sweet potatoes with bacon

What is your favorite holiday dish (excluding dessert!)?

What is your favorite holiday memory as a child?

AdaPia It’s tradition in Italy to make a fish-

Abhi: Shopping in downtown Chicago in

and that’s usually what I make on the 24th.

AdaPia Any Christmas where my

based meal on Christmas Eve. I love fish stew,

the snow with family and friends

Bobby Prime Rib

grandfather came to visit from Italy

Chris Turkey

Bobby My father was a very practical

Erica Sweet potato casserole with mini marshmallows on top

Jeff Levin Fried potato latkes and applesauce during Hanukkah

Jeff Tesch Butternut squash with

cinnamon and butter, but it has to be creamy, not lumpy.

Kellen Day-after Tofurkey on a Rhodes

roll with mustard 60 PRIVATE LENDER

Nema Daghbandan

person, always saying that fancier things

“just have more parts to break.” My favorite memory was when he bought me a really

nice radio that I wanted, even though it had a lot of parts that could break.

Erica Finding hidden presents in the Christmas tree from “Santa”

Jeff One time my parents took my brother, sister and I to Club Med over winter break.

We grew up in Milwaukee and we had cold,

Mike Hanna Investment Mor tgage

Linda Hyde A A PL

Kellen Jones Cache Private Capital

Erica LaCentra

RCN Capital

Melissa Martorella

Jeff Levin

Geraci LLP

Specialty Lending Group

snowy winters. On Christmas Eve the staff

spreads of cured meats, cheeses, etc. to

It’s the only time of year my grandma makes

Claus water skiing. At that point in my life,

Jeff Levin Living each day to its fullest

Nema Setting up a Christmas tree after

at Club Med had a motorboat with Santa

I had never been away over winter break and thought that it was so cool that Santa Claus could water ski!

Kellen One year we built a nativity scene as a family, ate like they would in Bethlehem and did service projects throughout the

holiday break. We only got one gift from

Santa. That year outshined even those when Santa brought me John Stockton’s rookie card or my first guitar.

Nema My mom worked in hospitals

nibble on before dinner.

Kellen Seeing the looks on the faces of my wife and kids as they open gifts and feeling like no one expects me to return an email for a day or two

Sohin Reflecting on

recent experiences and

hopefully learning from the same

my whole life and was almost always working

What is your favorite holiday tradition?

the morning on Christmas Day so we could

Erica, Jeff Levin and Susan enjoy eating

on Christmas. She would wake us up at 5 in

open up presents together. I never appreciated this sacrifice until I had my own kids.

What do you look forward to the most? Nearly everyone responded that they

squid sauce for pasta—and it’s fantastic!

Thanksgiving. As a family we make hot

cocoa, throw on Pandora holiday

and have a mini dance party. We turn on the tree and it

starts the holiday season in my heart.

Sohin Reflecting on

recent experiences and

hopefully learning from

the same

Do you have a favorite holiday movie? Which one?

Chinese food on Christmas Eve or

Bobby, Melissa and Mike Hanna

that others shared:

Abhi It’s the Great Pumpkin, Charlie Brown

Abhi Full contact football during

AdaPia Rudolph, in stop-animation has

Christmas Day. Here are a few traditions


It’s A Wonderful Life

a special place in my heart!

enjoyed visiting with family and friends,

AdaPia Watching movies after having

including seeing their college kids at home

Christmas lunch

Story and Home Alone.

over break. A few other notable responses:

Kellen Christmas Eve PJ’s and

Jeff Tesch and Linda Hyde

AdaPia When I’m visiting with my family,

Pumpkin Spice

I look forward to the traditions that we grew up with, mostly around food and meals, like making homemade ravioli or setting food

Melissa My family is Italian and on

Christmas Eve you’re not supposed to eat

Erica It’s a tossup between A Christmas

The original Christmas Vacation Kellen Nightmare Before Christmas

meat. So, we have a bunch of seafood dishes. NOVEMBER/DECEMBER 2017 61

Bobby Montagne

e et Walnut Str e c n a in F

Susan Naftulin Rehab Financial Group LP

Chris Ragland

Noble Capital

Sohin Shah

Jeff Tesch

RCN Capital


Looking back over the year, what are you most proud of?

Mike My daughter’s award as the Ideal Waldemar Girl

What are you looking forward to in 2018?

AdaPia I’m thrilled and proud to have

Sohin I have started cooking regularly,

Abhi Working on growing my media pres-

completed my home rebuild-remodel. Two

something I was hoping to discipline myself

ence and influencing more investors than I

on for years!

thought possible!

Susan My children and the amazing friends

AdaPia I’m looking forward to seeing

have in my life.

balanced and empowering workplace for

Melissa I’m proud of how far Geraci has

What are you most grateful for?

some bad actors/companies serves to create

have been able to start at such a wonderful

Abhi Waking up in the morning

long years of DIY-work have paid off. I love my home and what it represents for the

future of the up-and-coming community and City of Inglewood, California. Chris My team grown over the last year. I am grateful to

firm right out of law school and have been given the opportunity to excel and grow along with the firm.

and family that I am fortunate enough to

Bobby: Always family Erica I’m looking forward to whatever

the New Year has in store for me.

Jeff Tesch Family and everyone being


When I’m visiting with my family, I look forward to the traditions that we grew up with mostly around food and meals, like making homemade ravioli. ADAPIA D’ERRICO


in good health

Kellen God, family, health, career and AAPL (in that order)

Linda My relationship with my mom and daughter!

Mike That my sister is still cancer free. Nema We just had a healthy daughter. I’m already wrapped around her tiny little fingers.

Sohin AAPL!

how the shift toward a more inclusionary, women shapes up. The bad press around

awareness and make meaningful changes. There is a big opportunity for male-led

companies to create better cultures and

more profits by empowering the women in

their organizations to participate and lead. Erica I’m looking forward to whatever the New Year has in store for me.

Jeff Levin Watching my two boys continue to grow

Jeff Tesch I’m looking forward to my youngest son graduating college and doubling RCN’s volume.

Linda Where it will take me, guess I will wait to see.

Melissa An even busier, more productive year at work! And maybe a few fun trips thrown in.

Mike Enjoying life! ■



Endorsements Every Commercial Lender Should Consider Endorsements can enhance the coverage of the title policy for commercial lenders. by Jason Powell & Abhi Golhar


ndorsements are used to expand or otherwise modify the

coverage of a title insurance policy on real property. Although

endorsements can modify any part of the policy, endorsements are most typically used either to extend or to expand the title policy

Letâ&#x20AC;&#x2122;s take a look at the specific endorsements commercial lenders should consider before making loans secured by commercial real estate.

The American Land Title Association (ALTA) has promulgated

for more comprehensive coverage in order to address a particular

conveniently numbered standard or uniform endorsements (see

Endorsements are available for both ownerâ&#x20AC;&#x2122;s and loan title policies.

ticular endorsement varies from state to state and from transaction to

title issue affecting, or potentially affecting, the real property.

Endorsements are not automatically issued; the owner or lender must specifically request them. 64 PRIVATE LENDER

www.alta.org/policy-forms). A title companyâ&#x20AC;&#x2122;s ability to issue a par-

transaction, depending on whether the endorsement is even allowed

in the state, and the specifics of the particular transaction. There are

times when a specific ALTA endorsement is not available, but a

California Land Title Association endorsement may be available. From the lender’s perspective, every commercial real estate

transaction must be evaluated on an individual basis to determine

Usury A Ursury endorsement insures against loss by reason of

invalidity or unenforceability of the lien of the insured mortgage resulting from violation of the usury laws of a specific state in

what level of title insurance coverage is appropriate. The use of

effect at date of policy.

and circumstances of a commercial loan and the matters that

Variable Rate

Section II). The list below is not intended to be comprehensive.

will not lose priority due to provisions in the mortgage that provide

used in commercial loan transactions.

loans). This endorsement does not, however, insure against the loss

any specific endorsement below will be determined by the facts appear on the preliminary title commitment (see Schedule B,

Rather, it highlights some of the more common endorsements

Access An Access endorsement provides affirmative coverage that

A Variable rate endorsement insures that the lender’s mortgage

for changes in the interest rate (i.e., variable rate, adjustable rate

of priority resulting from a usurious rate or violation of consumer protection laws.

the insured property (1) fronts a public street, (2) that the street is

publicly open and maintained and (3) that the insured has the right to use existing curb cuts.


Zoning A lender should request a Zoning endorsement to obtain

affirmative coverage of the applicable zoning classification and

allowed uses under that classification. This endorsement can be

issued with respect to unimproved land, land under development

and improved land. For unimproved land, this endorsement insures certain zoning matters as they relate to unimproved property. The endorsement specifies the zoning classification and the use(s)

permitted for the property. Issuance of this coverage requires an examination of the applicable zoning ordinances and amend-

ments to determine the particular zone and permitted uses of the real property covered by the title policy. For improved land, this endorsement describes the zoning classification and permitted

uses for improved property. In addition, this endorsement provides coverage against loss resulting from a court order prohibiting the

insured use or compelling the removal or alteration of a structure

or improvement on the land due to certain specified zoning violations, including floor space or setback requirements according to applicable law or regulation. This endorsement is available only

on already improved property when a determination can be made regarding the zoning classification of the property, permitted uses of the property and any zoning restrictions as to building and building site size.

CALL US AT 866-897-6966 EXT. 110/112 We have Whole & Fractional Equity Participations and Trust Deed Investments that can be invested with Capital Accounts and Retirement Accounts such as Self Directed IRA's, Pension Plans, 401k's, Roth's and many other qualified accounts. We are third party custodian friendly.




Tax Parcel (Single or Multiple) For single parcels, this endorsement insures against loss

(3) surface use of the land for mineral exploitation and oil and gas leases arising from mineral reservations and oil and gas leases

resulting from the property not constituting a single parcel for

affecting the land.

or in the event that the permanent tax number identified in the

First Loss

real estate tax purposes, separate and apart from other property, endorsement affects other land in addition to the insured land. The multiple tax parcel endorsement is used when there are multiple parcels involved.

A First Loss endorsement provides that a loss will be recognized

whenever a title defect materially impairs the value of the collateral without requiring maturity of the indebtedness by acceleration

of the debt and without requiring that the lender pursue its

Restrictions, Encroachments and Minerals This endorsement is also known as â&#x20AC;&#x153;Comprehensiveâ&#x20AC;? because

of the breadth of its coverage. It is designed to extend affirmative

coverage that the lender will not suffer any loss or damage arising

remedies against collateral. Without the endorsement, the lender

would normally be required to foreclose or pursue other remedies to prove this loss before being able to make a claim.

from the following matters not of public record: (1) present and

Commercial Environmental Protection

(the future violation must arise before the lender acquiring title

the lender with affirmative coverage that the insured mortgage will

future violations of existing covenants, conditions and restrictions by foreclosure or other means), (2) encroachments of improve-

ments across setback lines, servitudes or adjoining property and


A Commercial Environmental Protection endorsement provides

not lose priority to any environmental protection lien (1) recorded in the public records or filed in the district court where the property is

located, as of the date of policy or (2) provided by specific state

statute as of the date of policy, except any specific superior lien statute cited in this endorsement.

(2) the location of the foundations does not violate the covenants, conditions and restrictions referred to in Schedule B of the title policy.

Survey The Survey endorsement insures the lender against loss or

Contiguity In the event that the insured mortgage covers multiple lots or

parcels of land, a lender may request a Contiguity endorsement if

the insured mortgage covers multiple tracts and it is intended that no

gaps or gores exist between the tracts. In addition, this endorsement should be requested if the lender wants to know that the insured

parcel is contiguous to another parcel not being insured and which is already owned by the borrower. The title company may require

a current survey to issue this endorsement.

damage sustained due to violations, encroachments or adverse

circumstances that would have been disclosed by an accurate survey of the property. A lender may also want to request this endorsement

to ensure the boundaries of the property. A current survey will have

to be reviewed and approved by the title company before issuing this endorsement. If the owner does not have a current survey or will not obtain one, this endorsement will not be available.

Additional Considerations In addition to the above, if the lender is making a construction

Creditor’s Rights The Creditor’s Rights endorsement provides affirmative coverage

against loss or damage sustained by the lender due to the insured

mortgage being set aside due to the violation of applicable federal

loan that will have draws, the lender should consider the combination of the Construction Loan (Loss of Priority) endorsement and the Disbursement endorsement or a pending disbursement

and state bankruptcy laws or similar creditors’ rights laws.

endorsement or clause.

Deletion of Arbitration

free, while others range from a nominal amount to several thousand

The Deletion of Arbitration endorsement deletes the arbitration

clause from the 2006 Owner’s Policy. The 2006 policies contain arbitration clauses providing for compulsory arbitration at the

request of the insured or the insurer, if the policy does not exceed $2,000,000 and if such provision is enforceable under state law.

Subdivision The Subdivision endorsement provides affirmative coverage

that the land securing the mortgage is a legally subdivided parcel created pursuant to an identified subdivision map.

The cost of endorsements can vary widely. Some endorsements are

dollars. In some states, the rates for endorsements are frequently

negotiable, based in part on the size of the transaction, the number

of endorsements requested and many other factors. Other states, by

contrast, are “filed rate” states, with the cost of each endorsement set by the state insurance department.

Endorsements can greatly enhance the coverage of the title policy

for commercial lenders, and each endorsement should be evaluated in light of the preliminary title commitment and the facts and circumstances of each particular loan transaction. ■ ABOUT THE AUTHOR

Foundation The Foundation endorsement is used with the ALTA lenders

policy where a construction loan previously has been insured and

the lender, before making an advance, requires assurance from the title insurer that the foundations do not encroach upon adjoining

lands or violate existing covenants, conditions and restrictions affect-

ing the property. Typically, following a physical examination of the

property, the endorsement may be issued that will assure the lender that (1) the foundations of the structure under construction on the

subject property are within the boundary lines of said property and

Jason Powell is a corporate, securities and real estate attorney. Jason focuses much of his practice on representing real estate operators, developers, and lenders looking to raise capital to grow and expand. He can be reached at jason@crowdfundlawyer.com.

Abhi Golhar is the host of Real Estate Deal Talk and managing partner of Summit & Crowne. Abhi uses a “value-added” 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. Abhi holds a bachelor’s degree in electrical engineering from the University of Michigan. You can find him on Twitter, Snapchat, and Instagram - @AbhiGolhar.


AAPL AWARD NOMINATIONS The Association of Private Lenders has announced the nominees for the AAPL Excellence Awards. The inaugural awards ceremony will be held at AAPLâ&#x20AC;&#x2122;s 8th Annual Conference at Caesars Palace on Tuesday, November 14, 2017. The award nominees by category:

Community Impact

Bob Eakin

CEO of JCAP Private Lending bob@jcap.net

Brett Crosby

Peer Street rjack@peerstreet.com

Emerging Leader/Rising Star

Nema Daghbandan, ESQ. Partner at Geraci Law Firm nemad@geracilawfirm.com

Jennette Pokorny

Chief Marketing Officer of American Life Financial jh@originscf.com

Brew Johnson

Co-Founder & CEO at PeerStreet brew@peerstreet.com


Carrie Cook

President of Ignite Funding ccook@ignitefunding.com

Sohin Shah

Founder of InstaLend sohin.shah@instalend.com

Jeffrey Tesch

Managing Director of RCN Capital jtesch@rcncapital.com

“” Member of the Year

AJ Poulin

VP of Sales at Applied Business Software, Inc. aj@absnetwork.com

Erica LaCentra

Marketing Manager of RCN Capital elacentra@rcncapital.com


Kurt Power Think Realty

Erica Ruzicka

PLMG & RentFax

We have an incredible group of successful entrepreneurs and seasoned professionals that we couldn’t be prouder of. They help elevate standards of excellence to raise the perception of private lending. The Excellence Award Committee judges have their work cut out for them this year. LINDA HYDE Executive Director of AAPL

Allen Shayanfekr CEO & Co-Founder of Sharestates

Laura Chalk

Affinity Worldwide



Housing Market Finishing the Year Strong Real estate investment and alternative lending are big reasons. by Robert Greenberg


he overall housing industry looks to

finish the year strong, as the real estate

investment and alternative lending sectors continued to gain traction.

Daren Blomquist, senior vice president

at ATTOM Data Solutions and the keynote speaker at the American Association of

Private Lender’s (AAPL) national conference, said the 2017 housing market chalked up

strong numbers that allowed for continued

growth with a few challenges thrown in the 70 PRIVATE LENDER

mix. He predicted 2018 would see a con-

supply. Median home prices on existing

witnessed this year.

tember. The full year is on track to be the

track to be down about 8 percent in 2017 over

2013—an indication of continued demand in

tinuation of many of the things the market “At first blush, existing home sales are on

2016, and typically that’s not a good sign and could show weakness in demand, but at the same time we are seeing accelerating price appreciation,” Blomquist said.

Those two factors taken together may not

indicate weaker demand as much as tight

homes were up 7.8 percent through Sepstrongest home price appreciation since

the marketplace amid the nation’s ongoing housing supply challenge. By comparison, prices for 2016 were up just 6 percent.

Certainly, some markets saw weakening

demand due to rising mortgage interest

rates and affordability. This was particularly

Hurricanes in Texas and Florida temporar-

ket grew by four points in October to 68 on

the South in September, causing a drag on

Wells Fargo Housing Market Index (HMI).

material costs are negatively impacting the

builders view conditions as good than poor.

ily and severely disrupted homebuilding in the economy. Labor shortages and rising

home construction industry, especially the

the National Association of Home Builders/

Any number over 50 indicates that more

affordable segment. In California, massive

Investor-Driven Market

of homes in an area already suffering from

have received much of the credit for the mar-

these natural disasters to the housing market

finally turned a corner from the financial crisis

wildfires in October destroyed thousands

acute housing shortages. The total impacts of were still being sorted out as Private Lender went to press.

Homebuilders for the past few years have

focused on more expensive single-family

housing as rising labor, land and material

costs put pressure on margins. These highercost homes have largely kept first-time

homebuyers on the sidelines as student debt cramps their ability to qualify for a mort-

gage. While many factors have played a part in the country’s declining homeownership

When it comes to existing homes, investors

ket’s rebound, as they should. When housing and Great Recession, it was because institu-

tional investors swooped in and bought houses in 2012, helping raise prices off the floor. These large investors, who bought up foreclosed

houses by the tens of thousands in key markets that suffered massive declines in value, pro-

vided the momentum that the housing market needed to turn the corner and begin a price appreciation phase that has been sustained for five years running.

Today, though, the credit for housing’s

rate, it should also be noted that part of

continued growth goes to smaller, non-

noticeable in higher-priced markets such

Millennial generation’s growing interest

investors have pulled back amid rising prices

Austin, Texas.

foreclosure crisis unfold and became skep-

Blomquist said. “2017 looks a lot like the

homeownership rate stands at 63.7 percent,

interest rates that cooled demand a little bit.

slightly from the bottom, 62.9 percent, which

the decline has been attributed to the as San Francisco, San Diego, Dallas and

in renting long-term as they witnessed the

institutional investors. As large institutional and reduced distressed inventory, smaller

investors have come in to fill the gap. Institu-

“We saw a similar trend back in 2014,”

tical about homeownership. The current

2014 market when we saw a (slight) rise in

according to the U.S. Census Bureau, up

The somewhat puzzling thing is that price

occurred in the second quarter of 2016.

strong housing market.”

time, energy and capital since the end of the

forecasts existing home sales to close the year

further exacerbating tight single-family

a much smaller scale, just a handful of

showed significant signs of cooling in the

to drive housing activity and boost demand.

appreciation is accelerating. It’s still a pretty The National Association of Realtors

Builders have also focused much of their

housing crisis on the multifamily market,

at 5.44 million, down from 5.45 million in 2016.

supply. However, the multifamily segment

Housing Starts and Natural Disasters

second half of 2017, while single-family was

Housing starts as of October were on pace

to be slightly above 2016 numbers when the

year ends, but far below historical averages.

continuing to grow.

Despite some headwinds, builder confi-

dence in the newly built single-family mar-

tional investment in the single-family housing market was as high as 8 percent in 2012 and

2013, Blomquist said. “Now we are seeing them account for 2 percent of purchases; first-time

homebuyers have not really filled that gap. It

has been smaller investors who have followed

the path of the bigger, institutional investors.” These smaller investors are buying on

properties per investor, but that continues In addition, these smaller investors aren’t

singularly focused on distressed property. Instead, they are competing side-by-side with owner-occupants.



In 2016, ATTOM Data Solutions

recorded a record number of home pur-

The Effect of Rising Prices The rising prices the housing market

chases by non-owner-occupants, 33 percent,

saw this year can be a double-edged sword

when the housing data company formerly

Homeowners often view rising values and

statistic. In 2017, ATTOM data has contin-

housing market as their equity rises. But

investors buying up residential properties

which they are doing currently, that can

are willing to buy properties that may

and challenge the affordability equation

averages. To be sure, affordability isnâ&#x20AC;&#x2122;t

as big an issue for investors who are buying based on cash-flow opportunities for

for investors and owner-occupants alike.

rentals and on price appreciation for flips.

known as RealtyTrac began recording that

higher home prices as a positive for the

Alternative Lending Market Still Hot

ued to show mid-tier and mom-and-pop

if home prices outpace the rise in wages,

been tapping into an alternative lending mar-

for investment purposes. These investors

dampen enthusiasm from first-time buyers

need significant renovations that an owner-

for homeowners who want to trade up.

to consider. Some are being fixed and

400 counties studied by ATTOM Data

are being rehabbed for use as long-term

historic averages. A year ago, only 21 percent

according to data that goes back to 2000,

occupant may be unable or unwilling

In the third quarter, 45 percent of

flipped to owner-occupants, while others

Solutions were less affordable than their

rental properties.

were less affordable than their historic


Single-family real estate investors have

ket that emerged in the wake of the housing

crisis, as traditional mortgage credit became exceedingly tight. These new opportunities for financing, which have grown and blos-

somed over the past five years, have caused

more real estate investors to seek financing for their residential real estate purchases. ATTOM data shows that 35 percent of

homes flipped in the second quarter of 2017

were purchased by the flipper with financ-

ket. Those seeking financing are attracted

the highest level since third quarter 2008—

as loans are often approved within days.

ing. This is up from 32.3 percent a year ago to a nearly nine-year high.

Is alternative lending playing a role in this

increase? There have been several trends

underway in the alternative mortgage lending sector. First, we’ve seen the traditional big banks, which paid out billions in fines

to the speed of these alternative platforms The U.S. Treasury has recommended that

current limitations on investments in crowdfunding offerings be waived for accredited investors as defined by Regulation D of the Jobs Act.

In addition, Regulation Crowdfunding,

for their role in the mortgage crisis, back

or Reg CF for short, may become more

wake of the Great Recession. This is for a

more easily reach its funding goals. For

away from the mortgage business in the

variety of reasons, including risk, regulation and low margins. Their void has been filled by private money lenders who are mainly focusing on the traditional 15-year and

30-year fixed-rate mortgages to owner-

occupants. This group of nonbank lenders includes several who have embraced

attractive in the future if a company can non-accredited investors, the U.S. Treasury Department is recommending that the

crowdfunding rules be amended to have

investment limits based on the greater of

annual income or net worth for the 5 percent and 10 percent tests, rather than the lesser. Supporters of Reg CF are also lobbying

technology to offer an online application

to get the funding cap raised to at least

providing speed and enhanced efficiency.

$1.07 million to allow companies to lower

and underwriting experience geared toward We’ve also seen dozens of alternative

lenders launch crowdfunding platforms to

serve both real estate investors and borrow-

ers. These sites, operating online via robust

the offering costs per dollar raised while

empowering a broader group of emerging

companies to participate in this exemption.

The Bottom Line

as new investment opportunities for both

market give pause, optimism from consum-

Though some areas in the U.S. housing

accredited and non-accredited investors.

ers, as indicated by Fannie Mae’s Home

can participate in crowdfunding real estate

bode well for the future. Fannie Mae’s Home

by brick-and-mortar real estate.

in September to 88.3, the most recent data

Both institutional and individual investors loans offering attractive yields and backed Proposed changes in crowdfunding

regulations could further enhance this

fledging sector of alternative lending, which

continues to grow in stature while attracting investors who see the benefits of being able to diversify their portfolios while earning

returns that can outperform the stock mar-

2017 looks a lot like the 2014 market when we saw a (slight) rise in interest rates that cooled demand a little bit. The somewhat puzzling thing is that price appreciation is accelerating. It’s still a pretty strong housing market. DAREN BLOMQUIST

$5 million a year from the current

technology platforms, have created a new source of financing for borrowers as well


Purchase Sentiment Index, continues to

Purchase Sentiment Index rose 0.3 points

available, matching the all-time high set in June. Opportunistic real estate investors

may see fewer opportunities in this market

to capitalize on dramatically moving trends, but most people likely prefer today’s gen-

erally predictable housing market that has been without wild movements.

Still, the outlook for the housing industry

remains decidedly positive into next year. A healthy economy, low unemployment,

growing wages and historically low mortgage

rates all bode well for the future of housing. ■ ABOUT THE AUTHOR

Robert Greenberg joined Patch of Land earlier this year as Chief Marketing Officer. His professional experience includes over 25 years in marketing working with familiar consumer brands such as Pepsi-Cola, AnheuserBusch, and Sara Lee as well as B2B experience in retail, technology, finance and real estate. Recently, he led the marketing efforts for the B2R Finance where he helped originate more than $1 billion of real estate investor loans that led to the industry’s first-ever multi borrower single-family rental securitization. At B2R, he was responsible for branding, corporate communications, lead generation and integrated marketing efforts. He was responsible for leading the development and implementation of the marketing automation and CRM platform that helped to deliver sales management and operational efficiencies to enhance the customer experience for real estate investors nationwide.



“” Failure is in every part of success—it’s in its DNA. Until you can accept failure as a necessary step, success will always be one “step” away. PETE ASMUS

Failure Is Part of Success If you aren’t failing, you don’t really want it!


ailure is in every part of success—it’s in its DNA. Until you can

accept failure as a necessary step, success will always be one “step”

away. Most of the time your greatest successes are on the flip side of

your greatest failures. Sometimes failure is God telling us not to go in

that direction. Ultimately, how you handle failure decides your future. I should know.

Eight years ago, I was sitting in my car outside of LA Fitness, contem-

In that moment, the greatest secret of all revealed itself to me:

By blaming others and letting their words affect me, I gave them the

power to control my life. When I accepted the responsibility for what

happens in my life, I took back the pen of my future.

I even got a tattoo to remind myself that it’s up to me to “Go Make

Something Happen!” So what did I do? I knew everyone advertises to raise capital. I

plating suicide. I felt like a complete failure, and I had no idea how to fix

focused on how I could not only use those sources and funnels but

remember sitting there thinking, “I can drive off a cliff—that way I won’t feel

in order to reach this goal, and I’ve failed many times. But, I now own

No one was there to tell me it was going to be ok. No one was there to

My reach on LinkedIn is more than 1 million, with another 3.5 million

things. I grew up in a group home, so I didn’t have resources like others. I

it.” I remember the feeling of helplessness as the tears ran down my face.

lift me up. I felt alone in a car deciding my future. Just as the thought of driving off a cliff entered my head, the thought of my girls graduating

high school slammed in, shattering any thought of suicide. Thinking of my family created an emotion that him me like a semi.

In that moment, I realized I couldn’t leave my girls or my wife alone.

Then and there, I decided I was no longer going to be a victim. The

path back started with me accepting it was my fault for where I was and no one else’s. I realized that because it was my fault, I could do something to change it! 74 PRIVATE LENDER

also own those platforms. Since then, I’ve done whatever I needed

the largest real estate group in the world, with over 575,000 members! on our HTML database.

Here’s the point: If I hadn’t failed, I never would have kept trying

to figure out a better way. If I hadn’t been kicked and told I’d never

make it, I wouldn’t have fought so hard to prove those people wrong. Every time I fail, I learn. I have focused on how to fail forward. It

might be painful or uncomfortable, but growing outside of your comfort zone always is.

Pete can be reached at pete@GreenZoneProps.com. ■




Why Finance of America Commercial? Our unique loan program and dedicated customer support separate us from the industry. Let us prove it to you today. • • • •

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Visit www.foacommercial.com/aapl05 or call (888) 677-0721

Loans are subject to investor and business credit approval, appraisal and geographic location of the property and other underwriting criteria. Loan amounts and rates may vary depending upon loan type, LTV, verification of application information and other risk-based factors. Application fees, closing costs and other fees may apply. 1. Terms and Conditions apply. Lender-paid broker fees are not available in all states. License requirements vary by state. Broker will be required to sign a new agreement with Finance of America Commercial LLC. ©2017 Finance of America Commercial LLC | | NMLS ID # 1133465 | AZ Mortgage Banker License BK #0926974 | CA Finance Lenders License #60DBO 060757 | MN This is not an offer to enter into an agreement. Any such offer may only be made in accordance with the requirements of Minn. Stat. §47.206(3), (4) | 500 North Rainbow Blvd. | Suite 300 | Las Vegas, NV (702) 448-2030 NV Mortgage Broker License No. 4136 | OR Mortgage Lender #ML-5283 | Finance of America Commercial LLC only makes loans for business purposes | Finance of America Commercial is not currently licensed in Utah and is not licensed for certain loans in Idaho | Finance of America Commercial LLC is licensed or exempt from licensing requirements in all other states. Your specific facts and circumstances will determine whether Finance of America Commercial LLC has the authority to approve loans in your specific jurisdiction | Finance of America Commercial LLC operates out of several locations, but not all locations conduct business in all jurisdictions. NOVEMBER/DECEMBER 2017 75

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e t a D e h t e v a




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At AAPL’s 9th Annual Conference, you’ll have access to the largest gathering of your peers. People who you can relate to, learn from, and actively contribute to the best thinking in private lending.

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