Private Lender by AAPL

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The Official Magazine of AAPL | Fall 2022 ETHICS Recent Changes to AAPL's Ethics Code Page 6 MARKET TRENDS Understanding Construction Risks Page 32 OPERATIONS Preparing for Delinquency & Default Page 64  LENDER LIMELIGHT  Pavel Tchourliaev, Lawrence Schwartz, and Joe Fooks Three’s Company for Founding Trio SPECIAL FEATURE: AAPL'S ANNUAL CONFERENCE PREVIEW

CONTENTS

06 ETHICS

06 A Review of Changes to AAPL’s Code of Ethics

10 Understanding Your Ethical Responsibilities to Investors and Partners

16 COMPLIANCE

16 Does your Debt Fund Qualify as an “Investment Company”?

20 Hot Tax and Accounting Trends in Debt Fund Structures

26 MARKET TRENDS

26 How Renovated Foreclosures Stabilize Communities

32 Understanding 4 Big Construction Risks

40 CASE STUDY

40 Foreclosure Case Study: Unprepared Borrower IllEquipped to Handle Project

Mediterranean Home Experiences Revival

46 TECHNOLOGY

Turbocharge Your Website to the Latest Lender Trends

50 LENDER LIMELIGHT

Three’s Company for Founding Trio with Pavel Tchourliaev, Lawrence Schwartz, and Joe Fooks

56 FUNDAMENTALS

Creating Your Private Lender Virtual Dream Team

60 OPERATIONS

60 Understanding Mezzanine Debt and Key Intercreditor Issues

64 Are you Prepared for Delinquency and Default?

68 Addressing REO/LenderPlaced Insurance Coverage Issues

72 How Inflation Is Impacting Insurance Premiums

78 SPECIAL TRIBUTE

Remembering Aaron Norris

CONFERENCE PREVIEW

83 Meet Your Hosts

84 Sponsors and Exhibitors

86 Activities

Excellence Awards

Small, Win Big

“Underdog”

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92 OPINION Bet
96 VENDOR GUIDE 98 LAST CALL Driven by
Motivation 32 64
RCN Capital, LLC is licensed as a California Finance Lender under Department of Business Oversight license number 60DBO-46258. Arizona Mortgage Banker License BK-0932325. Oregon Mortgage Lending License: ML-5571; NMLS Company ID: 1045656. This is Your Sign to Contact RCN Capital Today! Visit RCNCapital.com \ Email TWalker@RCNCapital.com \ Call 860.783.8844 Ti any Walker , Manager of Wholesale Lending

CONTRIBUTORS

Robert W. Barone

Katie Bean Benjamin Beer Daren Blomquist Rocky Butani

David Cook

Amy Doshi Eric Feldman Beth Johnson Ryan Letzeiser

Jeff Levin

Al Lowry Susan Naftulin

Aaron Norris Jack O’Flaherty Darren Roman Shawn Woedl

COVER PHOTOGRAPHY

Private Lender is published quarterly by the American Association of Private Lenders (AAPL). AAPL is not responsible for opinions or information presented as fact by authors or advertisers.

SUBSCRIPTIONS

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BACK ISSUES

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For article reprints or permission to use Private Lender content including text, photos, illustrations, and logos: 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.

www.aaplonline.com Copyright © 2022 American Association of Private Lenders. All rights reserved.

FROM THE CORNER OFFICE

A TIMELY WAKE-UP CALL FOR AAPL

As we near our busiest time of year at the American Association of Private Lenders, sometimes the smallest thing serves as a much-needed wake-up call to what it’s all about.

Ours was a sternly worded email asking us to itemize what benefit the sender would “get out of AAPL … other than the Annual Conference and AAPL magazine.”

Well.

Realizing others break down the culmination of so much time, effort, and strategy to “just two things” is a hard pill to swallow.

But, that sender is kind of right. If we haven’t done the job of articulating all our resources, that’s not the public’s fault. So, we replied to that email. And in the process of demonstrating our worth, we rediscovered our purpose.

We have been reminded that AAPL has so much to offer our audience that has real, lasting benefit for individuals and the industry.

As you trudge through periods where challenges can feel insurmountable and the pressure begins to squeeze, find a reason to step back and evaluate. Take the thing that feels like a gut punch and use it as your wake-up call. It’s your opportunity to rediscover your inspiration, your purpose, your reason to keep going.

So, with that said, here’s some (but not all!) of “what else” AAPL does:

Enforced Code of Ethics and the industry’s only publicly available complaint process

Member directory for the public to validate membership and find reputable partners

Member emblem to validate dedication to excellence and best practices

Advocacy with a 100% success rate over the last five years, preventing nine bills from passing with language harmful to our industry

Private Lender Associate and Fund Manager courses to provide trade-specific credentialing

Industry awards that, being association-backed, are the gold standard for distinction

Monthly educational webinars from trusted subject matter experts

Video archive featuring our entire webinar catalog

Ongoing promotional opportunities like Member Spotlight and Lender Limelight

Vendor Guide to find private-lender-vetted service providers

Online compliance center for regulation commonly affecting private lender operations

Downloadable Resources Center, including checklists, guides, and templates

Biweekly newsletter with the latest articles, news releases, and industry events

And OK, we might as well add these too:

Quarterly trade magazine that provides 300+ pages of best practices, thought leadership, and market trends annually, curated from subject matter experts across the industry and nation

An annual conference heralded as the single-largest and best industry event for education and networking

Managing Director, American Association of Private Lenders
FALL 2022 5

A Review of Changes to AAPL’s Code of Ethics

Private lenders’ unique position within the larger finance industry has allowed for greater nimbleness, flexibility, and a crucial level of self-agency in operations and strategy.

To maintain that advantageous but not assured differentiation among borrowers, investors, and industry partners, private lenders must demonstrate the ability to self-govern. The industry must exhibit that ability for two major reasons:

01 To protect the reputations of individual businesses and the profession itself against both bad actors and unintentional (but de-facto) unethical practices.

02 To serve as proof of internal checks and balances that prevent the need for additional regulation.

This protection mandate was the primary purpose behind the creation of the American Association of Private Lenders in 2009, although the first official Code of Ethics for the industry wasn’t formalized until 2014. Five years of thought, intentionality, and exhaustive discussion went into the original Code, drawing a delicate balance between completeness and limiting unnecessary burdens or impractical expectations.

All AAPL members must adhere to the Code’s standards of practice. Today, the association’s complaint process remains the industry’s only publicly accessible avenue to officially report potential violations. AAPL treats all reports with care, consideration, and seriousness, while also shielding members from those who seek to use the investigation process to harass or express dissatisfaction in otherwise ethical outcomes.

In the years since its original adoption, AAPL’s Code of Ethics has become a living document evolving alongside the industry. During

each session of the Ethics Committee, committee members review the existing code and canvass the association’s constituency to find areas where additional clarity or attention is needed.

The 2021—2022 Ethics Committee identified these areas for discussion:

Discrimination based on gender identity

Fee transparency

Prompt communication

What follows is an inside look at the thought process and extensive discussion surrounding each area, along with the committee’s final decision. The complete Code of Ethics may be found at aaplonline.com/ethics.

DISCRIMINATION BASED ON GENDER IDENTITY

In June 2020, the Supreme Court ruled in its Bostock opinion to prohibit employment discrimination based on sexual orientation or gender identity, with the CFPB publishing interpretive rule 4810-AM-P in March 2021 that “the prohibition against sex discrimination in the Equal Credit Opportunity Act (ECOA) and Regulation B … encompasses sexual orientation discrimination and gender identity discrimination, including discrimination based on actual or perceived nonconformity with sex-based or gender-based stereotypes and discrimination based on an applicant’s associations.” ECOA notably applies “in connection with an application for credit that is to be secured by a first lien on a dwelling” ergo, no exemption for private lenders.

Gender identity discrimination, fee transparency, and prompt communications were topics for recent discussion and change.
6 PRIVATE LENDER ETHICS

With those rulings, allegations of gender identity discrimination in employment or a borrower’s application for credit are firmly within the association’s purview to investigate under the existing standard that “Members will adhere to all laws with respect to the services in which they are engaged.”

However, some on the committee did have concerns this would still leave especially egregious and intentional gender identity or gender expression discrimination against individuals in a business setting as potentially outside the association’s domain, including the gaps where some private lender loans may still be exempt from ECOA considerations.

After much internal discussion, the committee has decided at this time to address complaint reports of discrimination based on gender identity or gender expression that do not fall under the standard: “Members will adhere to all laws with respect to the services in which they are engaged” under the existing “sexual orientation” anti-discrimination clause. The standard will remain as: “Members will not discriminate against any party based on their sex, age, race, nation of origin, sexual orientation, religion, or disability.”

FEE TRANSPARENCY

The following new standard was suggested: Members shall take reasonable steps to promptly inform customers in writing of fees and costs associated with the transaction, including any changes therein.

AAPL wishes to explicitly draw importance to the idea of fee transparency and practices that willfully keep clients in the dark until it is too late to find an alternative.

Although the committee unanimously agreed that a specific standard is necessary in this area, much caution was given to the approach and wording. Private lenders may need to change fees or costs as underwriting progresses and new facts are discovered about the borrower or property, and some fees are entirely out of the lender’s control as third-party costs.

For these honest and regular circumstances during loan operations, the committee has no wish to set stringent standards. The goal is to allow the association to specifically resolve issues with calculated

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ETHICS bad actors and communication practices that, while not intentionally concealing, still result in removing the borrower’s agency to find other options.

The committee adopted the suggested standard in its totality, to take effect Jan. 1, 2023. In the interim, any complaint reports will be reviewed under the standard: “Members will be honest, forthright, and professional in all their business dealings.”

PROMPT COMMUNICATION

Finally, after a recent spate of Code of Ethics complaints from borrowers who were in the middle of origination when all communication from the lender suddenly halted, the association wants to draw attention to such practices as unacceptable. If private lenders do not wish to draw the eyes of regulators who will happily apply consumer mortgage communication standards and timelines to private, business-purpose loans, this practice cannot become routine.

The association recognizes that often in these cases the member has chosen to halt communication amid market turmoil impacting their ability to continue operations. That does not make the practice ethical; even amid business disruptions or uncertainties, members must still treat their clients with honesty, forthrightness, and professionalism by promptly communicating issues that directly affect them.

Although the Ethics Committee agreed that this developing pattern must be addressed, the committee struggled with how to package such expectations into a new standard without being prescriptive.

Ultimately, the committee decided to continue addressing allegations of communication misconduct under the existing standard: “Members will be honest, forthright, and professional in all their business dealings,” while drawing the issue to members’ attention here and in other future guidance.

Beyond the standards outlined in the Code, the association’s Ethics Committee regularly authors specific guidance to provide private lending professionals with a framework from which to create best practices and check their existing operations for possible ethical issues. Guidelines and thought leadership are published in this periodical and are available online at aaplonline.com/ethics.

AAPL is the oldest and largest national organization representing the private lending profession. The association supports the industry’s dedication to best practices by providing educational resources, instilling oversight processes, and fighting regulatory encroachment. Find more information at aaplonline.com.

AAPL membership is the standard of excellence among private lenders and the foundation supporting the industry’s viability and growth.

Join the oldest and largest association providing for private lender education, ethics, and advocacy at aaplonline.com/join.

8 PRIVATE LENDER

Volunteer for our 2023 - 2024 Education, Ethics, and Government Relations Committees today.

Visit aaplonline.com/committees for more information and to apply today.

AAPL needs subject matter experts to guide initiatives that will shape the future of the private lending industry.

Understanding Your Ethical Responsibilities to Investors and Partners

Transparency is key when an adverse event occurs.

The worst has happened. You have had a significant adverse event that may affect your company’s financials and threatens the very existence of your company. If you are a fund manager, what do you tell your investors? How much do you tell your investors? What steps do you take immediately to protect the company, its management, and the investors?

HONESTY AND TRANSPARENCY ARE KEY

As a rule, fund managers of limited partnerships, limited liability companies, and corporations have a fiduciary duty to their limited partners and investors. Black’s Law Dictionary defines fiduciary duty as “a duty to act for someone else’s benefit, while subordinating one’s personal interests to that of the other person.” Black’s further expands this

definition to mean “one who owes to another the duties of good faith, trust, confidence, and candor.” The key word in these definitions is “candor,” which is defined as “being open and honest in expression.”

Being open and honest with your investors is the only reasonable option in such a case. No one has ever been sued by their investors for over-disclosing. They may be sued for the underlying action that caused the adverse event, but the disclosure itself is not the issue. Secrets rarely remain secrets in these scenarios. However, thousands of lawsuits have been filed against managers, members, and owners due to lack of disclosure, even if the underlying actions were not actionable on their own. Full disclosure is a requirement of meeting a duty to your investors, whether or not required under the terms of your partnership agreement or operating agreement; it’s the law.

HOW TO DISCLOSE

Disclosing what has happened to your investors as early as possible is very important. This is true even if you don’t fully know the extent of the harm at the time. It is important to let them know as early as you do that there has been an adverse event, what the implications are, what you know and do not know, and what you are doing to fact find. Take the time you need to understand what happened, but don’t wait until you know all the details and have a resolution. There is a fine line between waiting until you know enough to inform investors that something is going on and withholding information. If you send monthly or quarterly updates to your investors, you must include it in the communication that takes place on this schedule. It is very bad form to send an update that does not include this important information, even if it is

10 PRIVATE LENDER
ETHICS

merely to say that something happened and you are still fact finding. It is also critically important to let them know you will update them when you know more. Finally, do not raise capital from investors without full disclosure of the ongoing issue. Not disclosing is almost a guaranty of litigation if a significant loss occurs. Make the disclosure in writing with as specific information as possible, including what happened, how you believe it may impact the company, whether you think it will impact distributions, whether it will impact capital accounts, and the steps

you are taking to determine the extent of the harm and your efforts to mitigate loss. Take a worst-case scenario approach rather than a best case. You are better off telling your investors later that the company did better in resolving the issue than telling them the result was worse than previously disclosed.

Such broad disclosure lets your investors know the problem exists and they may not get distributions of income as expected. It gives them a chance to ask questions and feel part of the process. Because of the immediate and transparent disclosure,

investors will generally accept what they are being told and trust management to keep them updated when more information about the details and impact of the event become known.

EXAMPLES OF REAL-WORLD DISCLOSURES

On the next page is an example of such a disclosure. This is a letter from Tim Cook to Apple investors on January 2, 2019. Notice that he specifically states what the issue is and then recites the factors causing the issue.

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ETHICS

To Apple investors:

Today we are revising our guidance for Apple’s fiscal 2019 first quarter, which ended on December 29. We now expect the following:

Revenue of approximately $84 billion

Gross margin of approximately 38 percent

Operating expenses of approximately $8.7 billion

Other income/(expense) of approximately $550 million

Tax rate of approximately 16.5 percent before discrete items

We expect the number of shares used in computing diluted EPS to be approximately 4.77 billion.

Based on these estimates, our revenue will be lower than our original guidance for the quarter, with other items remaining broadly in line with our guidance.

While it will be a number of weeks before we complete and report our final results, we wanted to get some preliminary information to you now. Our final results may differ somewhat from these preliminary estimates.

When we discussed our Q1 guidance with you about 60 days ago, we knew the first quarter would be impacted by both macroeconomic and Apple-specific factors. Based on our best estimates of how these would play out, we predicted that we would report slight revenue growth year-over-year for the quarter. As you may recall, we discussed four factors:

First, we knew the different timing of our iPhone launches would affect our year-over-year compares. Our top models, iPhone XS and iPhone XS Max, shipped in Q4’18—placing the channel fill and early sales in that quarter, whereas last year iPhone X shipped in Q1’18, placing the channel fill and early sales in the December quarter. We knew this would create a difficult compare for Q1’19, and this played out broadly in line with our expectations.

Second, we knew the strong US dollar would create foreign exchange headwinds and forecasted this would reduce our revenue growth by about 200 basis points as compared to the previous year. This also played out broadly in line with our expectations.

Third, we knew we had an unprecedented number of new products to ramp during the quarter and predicted that supply constraints would gate our sales of certain products during Q1. Again, this also played out broadly in line with our expectations. Sales of Apple Watch Series 4 and iPad Pro were constrained much or all of the quarter. Air Pods and MacBook Air were also constrained.

Fourth, we expected economic weakness in some emerging markets. This turned out to have a significantly greater impact than we had projected.

In addition, these and other factors resulted in fewer iPhone upgrades than we had anticipated. These last two points have led us to reduce our revenue guidance. I’d like to go a bit deeper on both.

Emerging Market Challenges

While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac, and iPad.

China’s economy began to slow in the second half of 2018. The government-reported GDP growth during the September quarter was the second lowest in the last 25 years. We believe the economic environment in China has been further impacted by rising trade tensions with the United States. As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed. And market data has shown that the contraction in Greater China’s smartphone market has been particularly sharp.

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Another example of such a disclosure from a publicly traded company is below. This one, from Williams Industrial Services, was sent in early August 2022. Notice that this disclosure previews the items to be discussed in an upcoming earnings call with investors.

“While the long-term outlook for Williams remains favorable, it has become necessary to adjust 2022 guidance due to several non-recurring issues negatively impacting the achievement of previously forecast performance levels,” said Tracy Pagliara, president and CEO. “As will be explained in greater detail during our upcoming earnings call on August 12, these items

include additional start-up costs associated with our transmission and distribution business; further litigation expense related to a competitor and former employee; and continued margin pressure pertaining to previously-disclosed Florida projects, which are expected to be substantially complete this calendar year. In addition to these transitional costs, some awards and project work have been delayed until the second half, dampening revenue projections.

Again, notice the naming of the problem and the contribution factors.

It is not necessary to recite every possible outcome to your investors. It is sufficient to tell them what you believe is the likely

result at the end of the day. Do not speak in absolutes. Avoid using words like “definitely,” “guaranteed,” etc.; rather, use words such as “likely” and “probably.” Always include a sentence saying the statement is your opinion as of the date of the notification but that the future is unpredictable and the situation is subject to change. Most important, convey to your investors that you are being truthful and transparent.

ADDITIONAL CONSIDERATIONS

There are other things that management should consider with regard to adverse

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ETHICS

events and investors. If the potential loss is enough to make the company unprofit able for the year, distributions of income should be shut down immediately. There is no justification for distributing income from a company mid-year when the end of the year will show a loss. Hopefully, the entity documents allow manage ment to withhold distributions in its sole discretion in case of adverse events. Any well-drafted document should outline these parameters. If you do not have the right, consider amending your entity documents to allow this before you need it. Investors will not take kindly to this change after the fact.

Another action you should take immedi ately is to shut down any right to redemp tions your investors may have. Again, this assumes your well-drafted entity docu ments allow you to do so. The reasons for this are easy to understand. Redemptions deprive a company of its capital and make the investor base smaller, so that each redemption increases the loss risk of the remaining investors. All your investors shared in the bounty of income from your business when things were prof itable; they should share equally in the downside. By allowing redemptions, you increase the loss burden on your most loyal investors who did not pull their funds. It is simply a matter of being fair and equitable.

You must also check any other agree ments you may have with banks, ware house lenders, or other sources of capital. Even if you believe it is not necessary to suspend distributions and/or redemp tions, your agreements with these entities may require it. Taking the same approach

with your funding sources as you do with your investors is advocated here. Disclose everything you know, keep them updated, and share any projections you may have on the impact of the adverse event. Your very important relationship with your capital source is governed by the require ments of the written agreements between you. As painful as it may be, you need to tell them. In many cases, if you can present enough information to show them it will not affect them, they will listen, ask some questions, thank you for your candor, and not change a thing about your relationship.

Finally, and this is perhaps the hard est, senior management and ownership should defer any end-of-year profit sharing compensation (assuming there is profit) for the benefit of the investors. This approach helps to avoid investors feeling they were victims of management decisions. When the top of the company can show significant financial loss to themselves personally for the benefit of the investors, it goes a long way towards taking responsibility for the management decisions that led to the adverse event. Not everyone will agree with this strat egy, but it is hard to argue and accuse someone who gave up their piece of the pie so you could get more.

The importance of extensive and complete disclosure cannot be overstated. Equally important is to update the investors as you learn more. Do not keep them in the dark. Tell them both the good and the bad news. When you have done enough fact finding to be able to guestimate the potential loss, let them know. If your guestimate shows there will

still be income at the end of the year, send the distributions you missed and issue the remainder of the distributions on time for the rest of the year.

If you are as transparent as possible if an adverse event occurs, you may be surprised at the support you get from your investors.

ABOUT THE AUTHOR

Susan Naftulin is co-founder of Rehab Financial Group LP and currently holds the title of president and managing member. Before forming RFG, Naftulin held several senior management positions in the mortgage industry, including general counsel, managing attorney, chief operating officer, and senior vice president for both privately and publicly held mortgage lenders. In each of these positions, she was responsible for multiple aspects of the company, including loan origination and documentation, licensing and regulatory compliance, servicing, default management, litigation management, and human resources.

Prior to entering the mortgage industry, Naftulin was a creditors’ rights attorney with the Philadelphia law firm of Fox Rothschild LLP. She obtained her law degree from the University of Pittsburgh and has two bachelors of arts degrees from Carnegie Mellon University, one in history and the other in secondary education.

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FALL 2022 15 ARE YOU TRYING TO REACH PRIVATE LENDERS? Try advertising with us. Digital • Print • Newsletter • Social • Webinar CALL, TEXT, EMAIL TODAY. 913-888-1250 sales@aaplonline.com

DOES YOUR DEBT FUND QUALIFY AS AN “INVESTMENT COMPANY”?

Assessing whether your fund is an investment company is just the beginning of the journey to ensure complete and accurate financial reporting for your fund.

Akey, but often overlooked component of running a direct lending fund is fully understanding what your investors and relevant regulatory bodies expect and require in terms of financial reporting.

Allocating insufficient resources can result in investors entering and exiting your fund at the wrong price, material compliance issues, your auditors providing a non-clean opinion on your financials, or confusing and incomplete reporting for your investors.

The requirements and guidelines discussed in this article are based on Generally Accepted Accounting Principles (GAAP), the predominant accounting standards required in the U.S.

As fund manager, you must first understand whether you are required to keep GAAP financial statements. Generally, for private funds, the operating agreement your investors signed, facility agreements with

banks, and other legal agreements with various stakeholders will stipulate whether GAAP reporting is required or not. Once answered, you are ready to consider the investment company framework.

AN INVESTMENT COMPANY OR NOT?

If your fund is a GAAP reporting entity, you must determine whether it meets the defi nition of an investment company as defined by the Financial Accounting Standards Board Accounting Standards Codification Topic 946 “Financial Services-Investment Companies” (ASC 946), which will in turn dictate the specific reporting requirements and rules to use in your reporting.

Note: An investment company under ASC 946 is not the same as being an investment com pany under the Investment Company Act of 1940 (although it is worth noting that if you

are an investment company under the 1940 act, you do automatically meet the criterion for being an investment company under ASC 946—just not the other way around).

GAAP requires you to perform an assessment to make such a determination. If some characteristics of an investment company are met but others are not, apply your judgment. The AICPA Investment Company Guide provides the following guidance on characteristics of an investment company, per ASC 946-10-15:

01 It is an entity that does both of the following:

a. Obtains funds from one or more investors and provides the investor(s) with investment management services

b. Commits to its investor(s) that its business purpose and only substantive activities are investing the funds solely

16 PRIVATE LENDER COMPLIANCE

02

for returns from capital appreciation, investment income, or both

The entity or its affiliates do not obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income.

Further, the fund should assess whether it has the following:

01 More than one investment

02 More than one investor

03 Investors that are not related parties of the parent entity (if there is a parent) or the investment manager

04

Ownership interests in the form of

equity or partnership interests

05 Substantially all of its investments are managed on a fair value basis

SPECIFIC GUIDANCE FOR ASC 946 ASSESSMENT

If your debt fund is originating loans, there are additional specific considerations you must address when performing the previ ously discussed assessment (specifically relating to item 1b). The American Institute of Certified Public Accountants (AICPA) released “Q&A Section 6910: Investment Companies: Determining Whether Loan Origination is a Substantive Activity When Assessing Whether an Entity is an Invest ment Company” (the Q&A) in response to

the growing number of inquiries regarding treatment of debt funds.

The Q&A says that as a debt fund manager, you specifically need to analyze the qualitative and quantitative materiality of the fund’s income from loan originations (i.e., origination fees), as GAAP does not consider origination income to be capital appreciation or investment income (a key component of being an investment company).

Quantitative analysis. You must look at the amount of expected origination income in your fund over a relevant period of time (i.e., the average life of a loan) compared to all income in your fund. If the origination income is a significant portion of the income of the fund, it’s one

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indicator the fund may have business operations that are less indicative of an investment company.

Qualitative analysis. You should look at your specific fund’s situation when making the determination. The Q&A lists the following as examples to consider:

Investing Activity // Compare sales of originated loans to non-originated loans.

Regulatory considerations // Looking at specific fund regulations may provide indicators.

Ownership and management // Own ership of an investment advisor is more

indicative of an investment company; ownership by a bank is less indicative.

Customization // Customizing loans specifically for borrowers is generally indicative of an investment company.

Loan retention // Selling loans shortly after origination as opposed to holding them is less indicative of an investment company.

Embedded features // Loan features that indicate the loan is more like equity than debt is generally indicative of an investment company.

The Q&A recognizes that making the assessment may require significant judgment

and that the above analysis should not be considered all-inclusive. Ultimately, the key for fund managers is to go through the steps to understand where you are for each criterion and then document the rationale for where you landed. Be sure to work with your fund administrator and auditor to ensure your conclusions and documentation are appropriate.

NOW WHAT?

Let’s assume that after running through the above analysis with your fund administrator and auditor, you’ve concluded your debt fund is an investment

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company under ASC 946. What does this mean for your fund and its stakeholders?

It means you are required to follow specific accounting principles under ASC 946 that somewhat differ from operating companies.

The AICPA has a comprehensive guide that provides an accounting and auditing framework for investment companies. Here are some of the key differences between investment company accounting and GAAP historical cost accounting generally implemented by operating companies.

Investment companies are “fair value” funds. You may hear people use “fair value fund,” “investment company,” and “ASC 946 fund” interchangeably. One of the core components of being an investment company is holding your assets and liabilities at fair value. In other words, the net asset value (NAV), or your assets minus your liabilities, of your fund at any given reporting period should represent the estimated value of the fund if it were to hypothetically liquidate on that day.

Fair value is an important, ever-changing, and widely discussed topic in the fund management and accounting world. It is also imperative to get it right for openended funds that allow investors in and out periodically. Although many fund managers in the direct lending space assume that the fair value of their debt investments can be held at par, it’s crucial that you have a policy in place that is agreed upon with your auditors, fund administrators, and valuation experts.

Investment companies have special reporting requirements on the face of the financial statements. Familiar statement

names such as balance sheet and income statement become statement of assets and liabilities and statement of operations, with a slightly different presentation to better highlight important line items and metrics for investment companies. A schedule of investments is also added to summarize key investment metrics, exposure, and concentration.

Investment companies have special reporting requirements in the footnotes of the financial statements. The footnotes of your financials at yearend will specifically call out that your fund is an investment company under ASC 946. Further, there are a number of required reporting requirements that you should understand and work with your fund administrator and auditor to implement. While not all-inclusive, these requirements include a discussion surrounding valuation policies, details on the observability of inputs used in determining fair value (discussed as levels, with Level 1 being unadjusted quoted prices in an active market, Level 3 being illiquid markets being valued with unobservable inputs, and Level 2 being in between), and specific financial highlights breaking out the performance of the fund to its investors (e.g., total returns and expense ratios).

SUMMING IT UP

Bringing investors in and out of your fund at the right value, staying on top of compliance requirements, receiving a clean audit opinion, and having useful reporting for your investors is key to your fund’s success. Making a thoughtful

assessment about whether your fund is an investment company is just the beginning of the journey to ensure complete and accurate financial reporting for your fund, but it’s an important and often-overlooked component. Laying the groundwork early to apply the correct reporting framework will allow you to get the right resources in place to provide your investors and stakeholders with accurate information using industry requirements. Doing so is a critical step in gaining and maintaining trust from your investors . ∞

ABOUT THE AUTHOR

JACK O’FLAHERTY

Jack O’Flaherty is a founding partner and managing member at High Divide Management, a fund administrator that specializes in providing outsourced financial reporting, investor reporting, and CFO consulting to real estate lending funds.

A CPA, O’Flaherty managed the financial reporting for Columbia Pacific Advisors’ bridge lending funds before joining HDM. He also was an auditor in the alternative investment practice at PwC.

FALL 2022 19

Hot Tax and Accounting Trends in Debt Fund Structures

Staying on top of REIT and CECL trends is a good “defensive” move.

Earlier this year, we said goodbye to Bill Russell, the biggest winner in the history of basketball.

Russell was never the flashiest player, but by relying on strong fundamentals and a disciplined defense, he consistently won two high school state championships, two national titles with the University of San Francisco, and 11 NBA championships during the 13 years he played in the NBA.

Tax and accounting won’t score you points, but you can still apply Russell’s winning principles to your debt fund. In addition to keeping your fundamentals strong, it’s critical to play defense by staying on top of the latest technical and strategic updates.

Here, we’ll explore two topics we’ve seen trending across the industry:

1. Tax and other investor benefits of REITs (real estate investment trusts)

2. How the CECL (current expected credit loss) GAAP (generally accepted accounting principles) update might impact your fund

INVESTOR BENEFITS OF REITS

There are four primary reasons to be enthusiastic about REITs:

1. REITs block UBTI and ECI.

2. REITs avoid multiple state filings for your investors.

3. Investors take a 20% taxable deduction on REIT income.

4. REITs give fund managers more flexibility with allocations and distributions.

UBTI and ECI. When a REIT is a corporation for tax purposes in a direct

lending mortgage REIT context, it will eliminate two taxes at the shareholder level that are present in a traditional partnership structure:

1. Unrelated business taxable income (UBTI)

2. Effectively connected income (ECI) Investment through a corporate structure blocks this type of income, which is beneficial if you have either offshore or tax-exempt investors who are averse to these taxes. It is also worth noting that you should have over 50% ownership by U.S. persons to be classified as a Domestically Controlled REIT to avoid the Foreign Investment in Real Property Tax Act (FIRPTA) tax on disposition of any physical real estate the REIT could own (e.g., through a loan foreclosure).

20 PRIVATE LENDER COMPLIANCE

State filings. Lending entities structured as partnerships often have multiple state filing requirements. Many states require apportionment and the filing of tax returns if you are lending to customers in such state. The partnership will also potentially have a withholding obligation in such state to the extent income is allocated to non-resident partners and, in many cases, the partners will also have to file tax returns and pay taxes in those states. For lending entities that operate in multiple states, meeting the tax filing requirement for each investor in multiple states is costly and administratively burdensome for your investors.

In a REIT structure, dividends paid to investors are generally taxable only in the investor’s resident state; thus, there is no need for multiple state filings at the investor level.

20% deduction. The Tax Cuts and Jobs Act made REITs much more attractive.

Investors in a REIT are eligible for Section 199A treatment: Recipients of the dividend income receive a 20% deduction to the taxable income generated by your REIT. Many lending entities structure as REITs to take advantage of this provision.

Unfortunately, Section 199A has a limited window of utility, as it is set to sunset at the end of 2025 unless future legislation

is enacted to extend it or make the tax benefit permanent.

It is important to understand the legal and tax requirements for operating a REIT to ensure it can be allowed the deduction for dividends paid to shareholders. The key here is that your lending activity must be collateralized by “good” REIT assets.

REIT rules require that income be primarily generated by real estate sources, including lending collateralized by real estate assets. You also must distribute out the profits each year. In addition, a REIT must be owned by 100 or more shareholders, and five or fewer individuals cannot own more than 50%

COMPLIANCE

of a REIT. If you have a problem meeting the 100-shareholder test, there are REIT shareholder accommodations services that can help secure additional shareholders to invest in the REIT. These shareholders typically own a different class of stock with no voting rights and receive an annual dividend for their investment.

Flexibility with allocations and distributions. For fund managers who wish to retain a partnership structure, a traditional fund can own the REIT, which allows for both normal partnership allocations and the fund manager to be allocated a carried interest. Additionally, having a partnership own the REIT allows the fund manager to reinvest required REIT

distributions. As mentioned previously, a REIT is required to distribute the majority of its profits each year. Having a partnership between the REIT and its shareholders gives the fund manager flexibility to reinvest the profits in the REIT as opposed to giving them to the investors and then asking for additional funding to invest in the REIT.

If you are thinking of using a REIT, you need to be aware of the various regulatory tests and metrics that must be followed.

Once you complete the first reporting cycle, you should begin feeling more comfortable, even if you do not have a background in tax. Even after Section 199A sunsets, REITs can be a powerful tool in your structuring conversation,

limited mainly by whether the activity you contemplate undertaking will meet the REIT asset and income rules.

In summary, if your lending activity can be qualifying REIT transactions, you should at least consider using a REIT somewhere in your direct lending platform. In general, funds that have scaled above the $20 million to $25 million mark in AUM (assets under management) begin seeing the economic benefits of a REIT outweigh the additional compliance costs.

HOW CECL IMPACTS YOU

Debt funds have two GAAP reporting frameworks that could apply:

22 PRIVATE LENDER

1. Operating GAAP

2. Investment company GAAP

If you report under investment company GAAP, here’s the good news: the commentary that follows does not apply to you. If you do not report as an investment company, that’s OK, because we’re here to help.

For financial reporting years beginning on or after Dec. 15, 2022, and interim periods therein, GAAP requires you to implement ASU 2016-13 “Financial Instruments – Credit Losses” and subsequent amendments that are codified in ASC 326. This is a significant change in the way you will be assessing and recording credit losses on your loans.

This new guidance adds an impairment model, the current expected credit loss (CECL) model, which is based on expected losses rather than incurred losses. You will recognize as an allowance an estimate of expected credit losses at the time the loan is made that is adjusted accordingly at each reporting period. The CECL allowance includes expected losses on not only the actual loan funded but also the unfunded commitment. This allowance will reflect the expected losses over the contractual life of the asset, even if that risk is remote. The model takes into account historical loss experience, current macroeconomic factors, and supportable forecasts.

You can use various methods to determine this allowance, such as the discounted cash flow method, the loss-rate method, or the probability of default method, among others. One of the keys in implementing the CECL model will be to assess the sources of data. You may use internal loss information or third-party vendor

COMPLIANCE

models to assist in the development of the allowance. You may need to develop processes and procedures to effectively implement the CECL model, and this could take effort and expenses.

Keep in mind that the treatment will be quite different for tax purposes: With the exception of certain financial institutions, you must use a specific charge-off method and demonstrate that a loan is worthless before it can be written off.

The Financial Accounting Standards Board (FASB) provided some transition relief. ASU 2019-05 “Targeted Transition Relief” allows you to make a one-time irrevocable election to adopt the fair value option (FVO) for eligible assets upon the adoption of ASC 326 for financial assets that are in scope of ASC 326 and are eligible to apply the fair value option under ASC 825. You would record those existing assets at their fair value on a recurring basis. Any new loans made or acquired would need to elect the FVO at the time of origination or purchase.

Additionally, reporting loans under the FVO changes the way origination and exit fees are recognized: Instead of amortizing the fees over the life of the loan, they are recognized at the time they are contractually owed.

The accompanying chart summarizes these differences.

You will need to assess whether CECL or the FVO is best for you based on your business, resources available, and the cost to implement. But time is running out: You will need to determine your CECL roadmap in the next few months—2023 is just around the corner. ∞

Loans*

Loan losses

Loan fees

Financial statement disclosures

Reported at carrying cost less a CECL allowance (the net amount expected to be collected)

Estimated and fully recognized at the point of origination

Amortized over the life of the loan

Carrying cost and CECL accounting policy and estimates

Reported at fair value

Unrealized if a loan decreases in fair value

Recognized as incurred

Fair value disclosures

*Note that debt securities classified as available for sale are not within the scope of the CECL standard.

Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances, and jurisdiction. No representa tion or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

ABOUT THE AUTHORS

AL LOWRY

Al Lowry is a tax director at CohnReznick. He specializes in hedge fund, private equity, fund of fund, and management company tax consulting and compliance, including private and public REIT strategies and generally all types of foreign and domestic U.S. alternative investment vehicles. Lowry works with clients across the U.S. as well as asset managers in the U.K., Australia, Canada, and with offices in Asia, Europe, and Latin America. You can reach him at al.lowry@cohnreznick.com

BENJAMIN BEER

Benjamin Beer is the assurance director at CohnReznick and a member of the Financial Services and Commercial Real Estate Industry practices. He special izes in commercial real estate funds and REIT entities. Beer has more than 15 years of experience in both public accounting and private industry, specializ ing in real estate funds and private equity. You can reach him at benjamin.beer@cohnreznick.com

CECL FVO
24 PRIVATE LENDER

remains

continues undaunted.

FALL 2022 25 (855) 972-7391 www.civicfs.com YOUR TRUSTED LENDING PARTNER Amidst all of the changes in today’s market, one thing
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If you need an experienced, reliable lender that provides superior service and access to capital at competitive pricing, you're in the right place. RETAIL |WHOLESALE |CORRESPONDENT| WHOLESALE | CORRESPONDENT ® ©2022 CIVIC Financial Services, LLC. All Rights Reserved. This is not a commitment to lend. All offers of credit are subject to approval. Restrictions may apply. CIVIC Financial Services, LLC reserves the right to amend rates and guidelines. NMLS ID 1099109. Loans made or arranged pursuant to a California Finance Lenders Law License 603L321. AZ Mortgage Broker License 0928633. OR Mortgage Lending License ML-5282. CIVIC Financial Services, LLC is an Equal Housing Lender. See www.civicfs.com/Licensing.

HOW RENOVATED FORECLOSURES STABILIZE COMMUNITIES

Sixty-eight percent of renovated foreclosure resales during the pandemic went to owner-occupants.

Foreclosure properties

renovated and resold by real estate investors supplied an estimated 118,000 affordably priced homes to owner occupants in the last two years, according to an analysis of proprietary data from Auction.com and public record data from ATTOM Data Solutions.

The 118,000 renovated foreclosures resold to owner occupants represented 68% of all renovated foreclosures resold in the last two years, according to the analysis, which matched public record sales data to properties previously sold on the Auction.com platform at foreclosure auction or bank owned (REO) auction. The total market number was extrapolated based on Auction.com’s estimated market share of all distressed property sales.

RENOVATING RIGHT

The average resale price of the renovated homes sold to owner occupants was

PROMOTING HOMEOWNERSHIP WITH RENOVATED FORECLOSURES

$235,312, and the monthly payment to buy the renovated homes, including property taxes and insurance, represented just 20% of the median family income in the census tracts surrounding the homes, on average. The renovated homes were resold

an average of 173 days, or less than six months, after the foreclosure auction.

“When we buy a property and we renovate it, we’re going to do it the right way,” said Tony Tritt, owner and broker at Tritt Realty, a real estate

26 PRIVATE LENDER
MARKET TRENDS 2016 57K 43K 123K 95K 100K 76K 2017 2018 2019 2020 & 2021 RESALE YEAR
Estimated Renovated Foreclosure Resales Owner-Occupied Pct Owner-Occupied 105K 78K 174K 118K 68% 74%76%77% 75%

company that buys and renovates distressed properties in the Atlanta area. “We’re still a business. Making a profit is important to us. But nowadays, delivering a product. Something that we feel proud of. I mean we live, work and play here.”

Among 23 Atlanta area properties that Tritt Realty has renovated and resold after purchasing on the Auction.com platform since 2016, 91% are owner occupied. Tritt’s renovated foreclosures have sold at an average resale price of $152,196, representing 17% of the median family income in the surrounding neighborhood, on average. Nearly half (48%) of Tritt’s renovated foreclosures are in low income neighborhoods, with more than half (52%) in minority neighborhoods, according to an overlay of census tract level data from the Federal Housing Finance Agency (FHFA).

AFFORDABLE FOR LOCAL FAMILIES

Nationwide, one third of renovated foreclosure resales over the last two years were in minority census tracts, while about 30% were in low income census tracts. Homeownership rates for renovated foreclosure resales were above 60% in both low income tracts (64%) and minority tracts (67%).

Real estate renovators like Tritt added an average of 33 percentage points in market value to the distressed properties they resold in all census tracts nationwide, and the value added through renovation was even greater in minority tracts (35%) and low income tracts (38%).

FALL 2022 27
VALUE-ADD RENOVATIONS, STILL AFFORDABLE RESALES Value-Added During Renovation Pct of Local Income to Buy Homeownership Rate 68% 67% 64% 23% 38% 24% 35% 20% 33% A ll Census Tracts Minority Tracts Low-Income Tracts

MARKET TRENDS

Despite the added value, renovated foreclosures still sold at affordable price points for local families. Overall, buying a renovated foreclosure in 2020 and 2021 required 20% of the median family income in the surrounding census tract. Renovated foreclosures required 23% of the median family income to buy in low income tracts and 24% to buy in minority tracts.

RESTRICTED INVENTORY

The estimated 118,000 renovated foreclosures sold to owner occupants between 2020 and 2022 was down from an estimated 153,000 in the

previous two years (2018 and 2019).

A pandemic triggered foreclosure moratorium on government backed mortgages that started in April 2020 and ended in July 2021 restricted the number of distressed properties available to real estate renovators like Tritt.

“It’s not that we don’t like foreclosure sales. We do,” said Tritt, explaining his shift to buying about 50% of his properties at foreclosure sale compared to nearly 100% in previous years. “The ones we pick up on the courthouse steps are the ones the institutional investors steer clear of.”

A temporary rule the Consumer Financial Protection Bureau (CFPB)

put in place between August 2021 and December 2021 effectively kept the nationwide foreclosure moratorium in place through the end of 2021. Volume of properties going to foreclosure auction has gradually increased since then, hitting a new pandemic high in the second quarter, according to Auction.com data. But even with that increase, foreclosure auction volume was still more than 50% below the pre pandemic level in second quarter 2019.

Richmond, Virginia area estate investor Rick Starnes said he’s noticed a recent uptick in bank owned (REO) properties available to buy via online auction.

RENOVATED FORECLOSURES RESOLD DURING PANDEMIC

Average Gross Flip

Metro

The part time investor started buying and renovating homes in 2018 and has purchased a total of seven properties, five of them on Auction.com.

“It’s been a pretty active little while here. I see a lot more foreclosure activity,” said Starnes, who has sold all of his renovated homes to owner occupants and takes pride in the quality of renovations he performs.

“When I walk away from (the renovated homes), I want (the buyers) to think they are buying a new house. I’m an engineer, and I don’t want to do it halfway.”

NEIGHBORHOOD IMPACT BY MARKET

Starnes is not alone in the Richmond market when it comes to selling

most of his renovated foreclosures to owner occupants: 87% of renovated foreclosures that resold in the Richmond market in the last two years went to owner occupants, according to the Auction.com analysis. The average resale price of renovated foreclosures in the Richmond area was $243,402, requiring just 20% of the local median family income to buy on average.

Among 104 metropolitan statistical areas included in the Auction.com analysis, Richmond posted the fifth highest owner occupancy rate for renovated foreclosure resales. Ahead of Richmond were Worcester, Massachusetts (96% owner occupancy rate); Boston (91%); Virginia Beach, Virginia (88%); and Hartford, Connecticut (88%).

Community Impact

Markets with the highest number of reno vated foreclosures sold to owner occupants were led by Chicago, with an estimated 5,102; followed by Atlanta (4,307); New York (4,072); Philadelphia (3,669); and Washing ton, D.C. (2,946).

Markets with the lowest average price for renovated foreclosures were Peoria, Illinois ($97,181); Youngstown, Ohio ($111,127); Toledo, Ohio ($121,180); Rockford, Illinois ($123,516); and Flint, Michigan ($126,743).

RETURNING INVENTORY

Despite a slowdown in the retail housing market, many investors are still hungry for more distressed inventory to renovate.

“I’m in aggressive acquisition mode,” said Starnes, the Richmond, Virginia area investor. “I’m just trying to lock in three more houses as inventory.”

The Virginia market is poised for a return to pre pandemic levels of foreclosure inven tory in the second half of 2022, according to Auction.com data. The number of proper ties scheduled for foreclosure auction in Virginia in the third quarter of 2022 was

for properties resold in 2020 to Q1 2022 after being purchased at auction or REO auction on Auction.com
FALL 2022 29
ROI
foreclosure
Percent OwnerOccupied Percent in Minority Tract Percent in Low-Income Tract Percent of Local Income to Buy R enov a t ed For ecl os ur es R es ol d Dur i ng P a ndemi c © 2022 Mapbox © OpenStree Map 29 7% 109 9% Aver age Gr os s Fl i p R OI f or pr oper t i es r es ol d i n 2020 t o Q1 2022 af t er bei ng pur chas ed at f or ecl os ur e auct i on or R EO auct i on on Auct i on com Met ro Area At l a nt a Sa ndy Spr ngs R os w e GA 0% 10% 20% 30% 40% 50% 60% 70% 80% V a u e 76% 52% 35% 21% Communi t y I mpa ct Met ro Area At l a nt a Sa ndy Spr ngs R os w e GA Pandemic Home F ips ( Res old Q1 2020 t o Q1 2022) 50 500 1 000 1 407 Percent OwnerOccupied Percent in Minority Tract Percent in Low-Income Tract Percent of Local Income to Buy 29.7% 109.9%29 7% 109 9% Aver age Gr os s Flip ROI f or pr oper t ies r es old in 2020 t o Q1 2022 af t er being pur chas ed at f or eclos ur e auct ion or REO auct ion on Auct ion.com M t A Communi t y I mpa ct
Area At l ant a-Sandy Spr ngs -R os w e l GA Metro Area Atlanta-Sandy Springs-Roswell, GA
80% 70% 60% 50% 40% 30% 20% 10% 0% Value 76% 52% 35% 21%

TRENDS

BY STATE

Q3 2022

18% above the pre pandemic level in third quarter 2019. That was the sixth highest among all states, behind Wyoming (52% above pre pandemic levels), Colorado (47% above), West Virginia (45% above), Nebraska (40% above), and Minnesota (35% above).

States where third quarter 2022 scheduled foreclosure auctions were furthest below pre pandemic levels were New Jersey (91% below), North Dakota (89% below), Florida (82% below), Massachusetts (78% below), and California (78% below). ∞

ABOUT THE AUTHOR

DAREN BLOMQUIST

Daren Blomquist is vice president of market economics at Auction.com. In this role, Blomquist analyzes and forecasts complex macro and microeconomic data trends within the marketplace and greater industry to provide value to both buyers and sellers using the Auction.com platform.

Blomquist’s reports and analysis have been cited by thousands of media outlets nationwide, including all the major news networks and leading publications such as The Wall Street Journal, The New York Times, and USA TODAY. He has been quoted in hundreds of national and local publications and has appeared on many national network broadcasts, including CBS, ABC, CNN, CNBC, FOX Business, and Bloomberg.

MARKET
SCHEDULED FORECLOSURE AUCTIONS
Percent of Pre-Pandemic Level S ch edu l ed For ecl os u r e Au ct i on s by S t a t e Q3 2 0 2 2 1 4 0 % 1 5 2 % 1 3 5 % 1 1 5 % 1 0 0 % 1 0 5 % 1 1 8 % 1 4 7 % 1 1 % 5 6 % 7 8 % 2 9 % 2 5 % 3 2 % 4 1 % 3 3 % 2 5 % 2 9 % 2 3 % 3 2 % 5 5 % 6 9 % 4 3 % 5 2 % 6 8 % 7 8 5% 3 % 2 2 % 3 8 % 1 8 % 6 9 % 2 8 % 3 0 % 4 5 % 7 9 % 3 6 % 6 4 % 7 1 % 8 2 % 9 8 % 2 9 % 6 2 % 9 % © 2022 M pb © Op S t tM p 1 % 1 5 2 % P er cen t of P r e P a n dem i c Lev el 1 1 4 % © M pb © OS M 4 2 % © M pb © OSM

OUR AUDIENCE IS WAITING FOR YOU.

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Understanding 4 Big Construction Risks

When it comes to construction lending, nothing is more important than going in with your eyes wide open.

Construction lending comes with a lot of risks, so fully understanding those risks is an essential part of every lender’s job. In fact, there are significantly more risks in construction lending today than there were just two years ago.

Despite those added risks, the strategy for a successful construction loan remains much the same: knowing fully where your project stands, understanding your project’s risks and how the project can best be executed—and using the proper tools and best practices to mitigate potential risks. The execution of the project doesn’t really change, you are just “building a better mousetrap.”

UNDERSTANDING TODAY’S CURRENT RISKS

Expecting the unexpected and properly preparing for ways to mitigate risks is

just one part of a lender’s job. Keeping current with the market, the changing practices of contractors, and the risks they both present is the second part. Below are four big risk factors construction lenders should currently be aware of.

Escalation clauses and allowances. These are the elephants in the room (aka contract) no one likes, but everyone should know about and learn to expect them in construction contracts now (or until the market has settled).

Material cost escalations. Material prices are up; this isn’t news. However, it’s important to note that these prices change constantly. This means that right now, no contractor is holding costs/ quotes more than two to four weeks. So, when a lender is making a loan on a project, there is a necessity of speed to execution. A delay can cost the project more money because the bids will be out-of-date and need to be rebid. That being said, as you are deciding whether to loan on a project, always make sure the pricing is current.

What’s an escalation clause? It’s a clause that allows the contractor to increase the owner’s price of the materials after the contract is signed if material prices increase unexpectedly beyond the con tractor’s control. It allows the contractor to shift some of the risk to the owner, so everyone shares in the cost impact.

Until the last year, escalation clauses were not common; an increase in price was a risk owners preferred to place on the contractor. The last time we saw this happen was in 2007-2008 when projects experienced significant inflation prior to recession. Since then, these clauses have

32 PRIVATE LENDER MARKET TRENDS

been newly dusted off and used more broadly than in the past.

Because of the unique and significant nature of today’s problems, contractors are no longer willing to take all the risk. However, with the risk also falling on owners/borrowers, lenders must understand how this can affect the loan and the borrower’s ability to meet loan

requirements. Lenders must understand how risks will be mitigated and dealt with.

What contingencies are in place and how might they play out? It’s very important the project be penciled out to cover all known and perceived risks before closing the loan. Mitigate as many risks as possible, within reason of making it a marketable deal, since the project ultimately needs

to be able to support itself. Remember, contingency is for unknowns, and budgets should be established for those known and perceived risks.

What about allowances? Allowances aren’t a new concept; they are set asides/budgets for elements of work that can’t be scoped or priced at the time of bidding (e.g., decisions on cabinets not made yet). Allowances traditionally ranged

FALL 2022 33

MARKET TRENDS

from 5-10% of the contract, but they have gotten significantly bigger and are ranging around 20-25%. In fact, we have seen these numbers be as high as 40% due to contractors who, unable to sign subcontractors until the loan was closed, were unwilling to take on the risk of escalation.

Allowances also allow the owner to take advantage of potential reductions in costs for items that aren’t needed on the project

until later in the schedule, if the owner believes certain costs might come down.

In any case, the lender should provide a specific window to the owner/contractor to award the subcontracts and reduce the allowances to a reasonable level. Although allowances in past markets gave the owner desired flexibility for undecided scope, now they protect the contractor from higher costs due to market volatility, which may put their business at risk.

Global supply chain crisis. Currently, there is incredible difficulty sourcing materials from domestic and international locations. Although supply chain has been an issue for more than a year now, it is a continuing concern because of unexpected circumstances that can occur (e.g., China locking down manufacturing). There is not much visibility into the issues that

may arise. Last year it was difficult to predict where the problems were going to be, and now new problems arise every month. In addition, there are no known quantities of the supplies available like there were two years ago.

What does this mean to a construction project? It means the decisions that once could be postponed (like the previous cabinet pricing example) need to be made before a project commences. It also means projects require more money down early on in the schedule for material deposits/ pre-purchasing. Hesitation in making early decisions and funding material deposits/purchases can lead to costly delays in the construction progress.

the only one willing and able to take it on. This may mean the pricing is not as competitive as in years past, and there may not be a replacement contractor in the wings in the event the original contractor defaults.

Building in a new area. Many projects are being constructed in new locations across the nation. The area may have a small workforce or supply pipeline that cannot support the volume of construction. A reduced workforce on a project will likely increase time to complete, which will also increase the cost to build the project.

Out-of-town contractors/subcontractors.

shortage postponed the project signifi cantly, the subcontractors may not be able to honor their obligations once the project is ready for them—they may be committed to another project that was not delayed.

VETTING THE PROJECT BEFORE LOAN CLOSING

Labor availability. The labor crisis stems from many factors, including the following: Fewer workers. COVID, unfortunately, has impacted the workforce and reduced it in ways it still has not recovered from. Some people left the construction workforce altogether, and many are aging out. In addition, there is a lot of difficulty recruiting young people, because there is diminished interest in joining the construction world.

Fewer bids. The lack of workforce also affects the number of contractors and subcontractors able to bid on a project. In fact, there are fewer serious bids on projects than ever before and/or more contractors turning projects down. Before lending on a project, lenders should ask the owner/borrower how many bids they received and how/why they made the specific selection. The selected contractor may very well be

When lending on a project, it’s important to know where the contractor and their subcontractors are based out of. Out-oftown contractors will possibly have a hard time finding local subcontractors, not know whether they are reputable, and may be unfamiliar with the market; all of these equate to added risk.

In addition, attracting subcontractors from out of town is tricky because travel time plus increased fuel prices create less interest in the project. An out-of-town contractor may not have the market pull with local subcontractors when it comes to staffing the project, because subcontractors may put their available resources on projects with local contractors with whom they may have longstanding relationships. The result can be a project with a small workforce and slow progress.

Subcontractors’ ability to honor obligations. Due to issues with the global supply chain already discussed, it may be difficult for subcontractors to honor their obligations. If they were hired to perform work during a certain time but a material delay or

Thorough, timely due diligence on a construction project is crucial. In general, due diligence should be performed on the following: the borrower (which the lender conducts), the project’s documentation completeness, and the construction team. The latter two are typically outsourced to third-party consultants.

Documentation, budget, and construction schedule review. It’s important that a project have quality documentation and to know whether the scope of the project is well-defined. Where is the project in terms of drawings and permitting in order to quickly execute mobilization? How close is it to executing and locking in prices and delivery? Has a contractor been selected and where are they in the negotiation?

These reports do a deep dive not only into whether the plans are complete and realistic but also provide feedback as to whether the schedules and budgets offer an accurate representation of today’s market risks as well as areas of concern.

Contractor and construction team. The contractor is one of the most important individuals to the success of the construc tion project. Evaluating the contractor and knowing the contractor’s strength is, there fore, particularly important.

FALL 2022 35

MARKET TRENDS

Does the contractor have the experience necessary to successfully complete the project? Is the contractor familiar with the product type (e.g., first time building a hotel)? Is the contractor keeping a positive cashflow or getting financially squeezed in too many places? Does the contractor have sufficient labor force (and have signed contracts)? How many projects is the contractor currently working on?

This type of review ultimately looks into whether the contractor and the team have the qualifications and capabilities for completing the project.

PUTTING PROTECTIONS IN PLACE BEFORE LOAN CLOSING

Putting extra risk management practices in place before loan closing offers the lender (and borrower) protections throughout the construction process. These practices will protect the project from delays, financial mismanagement, and defaults.

Construction monitoring. Having a project professionally monitored regularly ensures the project is progressing as required by the contract and to the standards/workmanship needed. In addition, it provides verification the work the contractor reports completed matches the actual work performed. In addition, the project’s monitor can flag project concerns or potential work hindrances early on.

Funds control. Although funds control typically goes hand-in-hand with construction monitoring, having a funds control process in place ensures funds are not being diverted to different line

items or different projects and that payments are not being made ahead of scheduled milestones or deliverables. Most important, it ensures the contractor is paying all parties while providing diligent oversight and collection of lien waivers (aka, no liens on the project).

Default management. There are a variety of tools lenders can use to protect against defaults.

The most common are surety bonds, such as performance and payment (P&P) bonds, which offer monetary protection to the owner/borrower in the event of contractor failure. In addition, some con sultants offer completion commitments that provide the services necessary to help get a project back on track in the event of contractor failure. Another tool now available is construction project comple tion insurance, which names the lender as beneficiary and provides immediate funding to complete a project in the event of borrower default.

Despite all the risks, construction projects offer lenders fruitful rewards.

Some lenders keep some of the risk mitigation practices, such as funds control, in-house to keep costs down. Electing to self-perform risk management should be a decision based on expertise and capacity. For larger projects, in particular, the benefits of having consultants with a larger sample size of experience, project pricing, and construction knowledge can be incredibly valuable.

It is also very important for construction lenders to be aware of both current and traditional risks and to perform proper due diligence and risk management practices on each project before closing on any loan. ∞

ABOUT THE AUTHOR

An industry veteran, Robert W. Barone, R.A., LEED AP, is a director of construction services at Partner Engineering and Science, Inc. With almost 40 years of experience in the commercial real estate industry, Barone has managed and provided consulting on billions of dollars in real estate transactions and development projects.

Barone has made a significant mark on the due diligence industry and is a sought-after expert for reviewing development proposals and providing construction consulting services for equity investors, major lending institutions, and foreign governments. Barone has personally facilitated thousands of real estate transactions and development projects throughout North America and Europe. Barone’s expertise includes consulting on a wide range of projects in the commercial and residential areas, with a strong concentration in complex mixed-use projects.

A pioneer in the establishment of sound due diligence and construction risk management practices, Barone served as co-chairman of ASTM’s E50’s committee on the “Standard Guide for Property Condition Assessments” and co-chaired the development of the “Standard Guide for Readily Observable Mold and Conditions Conducive to Mold in Commercial Buildings: Baseline Survey Process.” An esteemed thought leader, Barone has published in numerous real estate and other publications and been a guest speaker at organizations such as the NY Private Equity Network and National Association of Real Estate Investment Managers (NAREIM).

36 PRIVATE LENDER

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FALL 2022 37
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FALL 2022 39
OR

Foreclosure Case Study: Unprepared Borrower Ill-Equipped to Handle Project

Lender emerges with break-even scenario at best.

The information contained in this case study analyzes several aspects of a residential foreclosure. All confidential borrower information has been redacted from the case study to protect the borrower’s privacy.

The borrower purchased the subject property from a private seller for $260,000. The borrower planned to spend $40,000 to renovate the property. The expected time from purchase to completion of the renovation was 90-120 days, and then the property would go up for sale. At the time the loan was made, comparable homes in the market area were selling within 14 days of listing on the MLS.

The borrower was a part-time real estate investor who had successfully completed one flip within 18 months of origination. The borrower also had a full-time job working at USPS earning $80,000 per year.

The borrower’s friend knew the seller of the property and that the seller wanted to close quickly. The borrower saw an opportunity and believed he could complete the renovation within 90-120 days and put the property on the market for sale for $425,000, generating a profit of $125,000.

After closing, the borrower hired a contractor referred to him by a co-worker. The contractor, who was not licensed, told the borrower he did not need permits to renovate the property. The borrower did not inquire further. He did not check any references,

verify the contractor had a license, or doublecheck whether a permit was required. He decided to proceed with this contractor.

The contractor told the borrower he needed an advance payment before starting the renovation. The borrower advanced 50% of the renovation amount, totaling $20,000. At this point, the borrower had spent $50,000 on this project: $30,000 at closing and the $20,000 advance payment to the contractor.

TIMELINE AND INVESTOR REPORTING

After closing, the borrower communicated by phone and email almost daily to our servicing department, updating them as to his progress. He made his first payment, and he signed a contract with the contractor shortly after. The borrower made his second payment, and communication started to wane: We began receiving updates once a week and then every other week.

The borrower was now due for his third payment, which he made on time; however, there was no request for renovation funds. Our servicing department knew this was a red flag and checked the county website for permits. When no permit was found, they immediately scheduled an inspection of the property. Upon inspection, it was clear that no work had been done to the property.

40 PRIVATE LENDER CASE STUDY

Property Type // Single family

Loan Type // Purchase

Purchase Price // $260,000

Renovation Amount // $40,000

ARV // $425,000

Loan Amount // $274,000

Loan Term // 12 months

Interest Rate // 9%

Lender Points // 2%

Interest Reserve // None

LTC // 90% purchase + 100% renovation

ARLTV // 64%

Cash to Close // $30,000

Exit Strategy // Sale

Now, four months into the loan, our servicing department made calls and sent emails to the borrower that were not returned. Most important, the borrower did not make his next payment. The loan was then sent to our attorney who sent a Notice of Default (NOD). Within three days of receiving the NOD, the borrower contacted the attorney and offered a Deed in Lieu of Foreclosure also known as a DIL.

Behind the scenes, our capital markets team was communicating with our end investor, taking valuable time and resources from the department. In addition to the resource drain and interest lost on the money paid out, funds were also paid to the foreclosure lawyer.

FINANCIAL OUTCOME

This case study is a perfect example of a borrower not being prepared or properly capitalized. As

FALL 2022 41
BEFORE AFTER

lenders, we do not want to foreclose, because nobody wins. Many borrowers think a lender profits when a foreclosure happens on a property of this type. After all, there was a healthy margin in the deal.

After we received the DIL, we set out to complete the renovations to extract the requisite value from the property. The renovated property did sell for $425,000, eight months after the DIL was signed. For us as the lender, that profit margin was expended on the inefficient process. After you add in the cost, time, and third-party expenses, at least we broke even; however, this is not always the case. ∞

ABOUT THE AUTHOR

Jeffrey Levin, a diversified real estate entrepreneur, is currently CEO of Pinewood Financial, founder of iwantalowrate.com, and a co-founder of an early-stage proptech startup. Levin, an industry expert, is a regular contributor to Private Lender magazine.

AFTER BEFORE JEFFREY LEVIN CASE STUDY BEFORE 42 PRIVATE LENDER AFTER

Mediterranean Home

Experiences Revival

Borrower rehabs a single-family home in Miami, Florida, in a neighborhood dedicated to maintaining affordable housing.

BEFORE BEFORE
44 PRIVATE LENDER
CASE STUDY

As climate change and rising ocean levels affect the more flood-prone areas of Miami, higher-elevation neighborhoods like Liberty City have become more attractive to investors. In response, the Liberty City Trust was established to maintain affordable housing in the area and protect the community.

OPPORTUNITY

Borrower Kibwe Williams saw an opportunity to create more value and transform a single-family home in this historic, tight-knit community. He purchased the two-bedroom, one-bathroom, 1,200-square-foot single-family home for $230,000 and planned to update it to current codes and modern aesthetics designed to fit in with the rest of the neighborhood.

The mid-level updates included adding a bedroom and a bathroom, resulting in a three-bedroom, two-bathroom home. In

addition, updates included creating an open floor-plan kitchen with stainless steel appliances and quartz countertops, updated bathrooms, windows, drywall and interior paint, interior doors, PVC plumbing, HVAC ducts, exterior stucco, shingles and fascia for the roof, and the addition of an enclosed carport, simple landscaping, and a primary bedroom closet.

EXIT STRATEGY

The exit strategy is to sell the single-family home at the estimated ARV of $390,000, which Williams is currently doing. Com parable properties in the area recently sold between $325,000 and $405,000.

Williams has a track record of successful residential fix-and-flip projects in this area. He and his team have financed several projects with Fund That Flip, allowing them to easily meet their goals of eight projects every two years.

Lender // Fund That Flip, Inc.

Borrower // Kibwe Williams

Location // 919 NW 66th Street, Miami, FL 33150

Original Architecture Style // Mediterranean Revival

Square Footage // 1,200

Original Year Built // 1940

Loan Amount // $283,000

LTV // 72.6%

LTC // 84.1%

Length of Loan // 12 months

Anticipated Rehab Costs // $84,000

Credit Score Considered // Yes

Client/Borrower Experience Level // Second with Fund That Flip; eight projects every two years

AFTER AFTER
FALL 2022 45

Turbocharge Your Website to the Latest Lender Trends

Upgrading a website may not be top of mind for the owners of most private lending companies, but it’s something you should do at least every three years.

46 PRIVATE LENDER TECHNOLOGY

Web technology is constantly evolving, and competition continues to increase in the private lending space. It’s critical to keep your website fresh so it makes a good impression on your visitors.

A “website upgrade” doesn’t mean you need a brand refresh, but that could be part of the project. The upgrade or rebuild is more about the structure, layout, messaging, content, user interface, and user experience. The extent of the project depends on how far behind your site is with current trends and how well it performs in terms of generating new business.

Let’s take a look at several web development trends that apply to private lending and a few tips to make the upgrade project more efficient.

WEB DESIGN AND DEVELOPMENT TRENDS

Of the many trends in web design, here are a few that apply to many private lending companies.

Motion UI. Subtle animations give websites more life and improve the user experience. Some examples include a scrolling welcome message, a button that moves after it’s clicked, or a moving graphic that loops on the homepage. There are many elements that can have motion, but the key is to not overdo it. Keep it subtle and simple.

Graphics vs. Stock Photos. Instead of stock photos, many lenders are now using graphics such as illustrations, line art, or abstract shapes. You can purchase

graphics from stock image websites like iStock Photo or Adobe Stock. You can also hire a designer to create custom graphics that are quite reasonable in cost. You can find lots of freelance graphic designers on Upwork.com and Fivver.com. If you prefer to use photos instead of graphics, be careful with your selection. Poorly chosen stock photos can look too tacky and gimmicky, leaving your site visitor with a stale impression. If you want to show photos that include people, use your own people to be more authentic. Hire a photographer to visit your office to get some candid shots of your team during the workday.

Single-Page Applications (SPA). Most private lenders have a small and simple website with similar pages: homepage, loan programs, lending guidelines, about us, and contact information. Instead of having multiple webpages, consider using a single-page application that puts all the content on one page. The navigation links will move visitors to a section of the page, giving your site the appearance of having multiple pages. Using a single-page app is a great solution when you have minimal content; it frees you from needing to come up with lots of copy just to fill up a page. One of the key benefits to SPA’s is faster load time. Using JavaScript, the entire page content loads in the background and instantly appears as you navigate or scroll. By contrast, a multipage site requires the server to fetch the pages and then load the content.

AMP. Accelerated Mobile Pages (AMP) is an open-source technology designed to enhance mobile content consumption by loading webpages instantly on mobile

FALL 2022 47

devices. Not having AMP could hurt your rankings in Google searches.

Additionally, Google will show a lightning bolt symbol associated with a result that lets users know a page will load faster than other non-AMP pages. If you have content-rich webpages,, it’s possible to create an AMP version of the pages just for search optimization.

AMP technology has been around for a few years, so most web developers should know how to implement it. Google Search Console offers tools to analyze your site’s performance and load time.

AI Chatbots. Many lenders already have a chat feature on their website to engage visitors, but the new trend is to increase efficiency by programming questions and responses. This improves the user experience and also helps filter out unqualified leads. Ask users what type of loan they are seeking, the loan amount, the location, and the loan-to-value, for example. You can program the chatbot to qualify leads before connecting them to a loan officer.

Some CRM systems like Zoho and HubSpot offer their own AI chatbot app, but there are many third-party apps that easily plug in to websites by copying/ pasting a bit of code.

Data Collection and Integration.

Every lender’s website should have a

form for potential borrowers/brokers to inquire and provide a few basic details.

If you already have a lead capture form, consider adding another one with a lot more data fields about the loan request. Some people are reluctant to provide a lot of information on the initial inquiry, while others are glad to share lots of details about their deal, credit score, and more. Once the lead has submitted the basic short form, offer them the option to continue on to provide more information.

There are many form builders you can plug in to your website. For websites using the WordPress platform, the most popular ones are Gravity Forms and Ninja Forms. Other content management systems typically have a built-in form system. Your web developer should be able to provide some recommendations and build the form for you. All modern form systems offer integration options to push the data directly to your CRM (customer relationship management) or LOS (loan origination software). If a direct integration is not available, you can use a third-party software like Zapier to scrape the data from an email.

HIRING A WEB DEVELOPER

Finding the right developer or designer for your website can be a challenge. There are many options, and the pricing can vary

widely. One easy way to find a developer is to reach out to business owners in your network to ask for recommendations. Another method is to find a few websites you like; then scroll to the footer to see whether there is a link to the web developer’s site.

Before engaging a web developer, plan the content of your new site and have a document ready with all the copy. Also consider hiring a writer to help with your messaging. The developer may have some recommendations, or you can use Upwork.com to find a marketing writer.

Getting started with your website upgrade project can feel like an insurmountable, time-consuming, and costly undertaking. It is, but it must be done. All private lending companies have to keep up with fast-changing web technology to stay competitive. ∞

ABOUT THE AUTHOR

ROCKY BUTANI

Rocky Butani is the founder and president of PrivateLenderLink.com, a website where investors and brokers can easily find direct private lending companies. He has managed four major upgrades of the site over the past 10 years.

“All private lending companies have to keep up with fast-changing web technology to stay competitive.”
48 PRIVATE LENDER
TECHNOLOGY
FALL 2022 49

THREE’S COMPANY FOR FOUNDING TRIO

Mortgage Automator’s partners rely on each other’s strengths to move the company forward.

Some say it’s not advisable to go into business with your friends, but the founders of Mortgage Automator wouldn’t have it any other way.

The Toronto, Ontario, tech company has evolved from a proprietary software project to an award-winning business with 50 employees and 275 clients across the globe. Partners Pavel Tchourliaev, Lawrence Schwartz, and Joe Fooks see more growth ahead.

‘WE’RE GOING TO SELL THIS SOFTWARE’

Each of the founders came to the business with a different background, lending a variety of perspectives to the company.

Fooks has worked in mortgages and private lending for nearly two decades. He

learned early lessons about bad business partners, having to rebuild from scratch twice in 10 years. Schwartz had a variety of jobs, selling everything from artwork to insurance. Tchourliaev, despite his background in accounting, built a web development agency that he grew and sold.

After a business disappointment, Fooks reached out to Schwartz, a former roommate, about joining forces in private lending. Finding success, they reached out to Tchourliaev, a longtime friend of Fooks, to build software that would make workflows run more smoothly.

“We had Pavel build up little things here and there to help us with our business, with no intention of ever commercializing the product,” Fooks said. “It was strictly like an ace up our sleeves for ourselves. Then, at some point, we realized the market was definitely missing something.”

SCHWARTZ, JOE FOOKS
50 PRIVATE LENDER LENDER LIMELIGHT  WITH PAVEL TCHOURLIAEV, LAWRENCE
AND
FALL 2022 51

Fooks said he and Schwartz were at a golf tournament chatting with colleagues when someone saw his phone screen showing the proprietary software Tchourliaev had built.

“She’s like, ‘I’ve been looking for something like this my entire life. Would you lease it to me?’” Fooks recalled. “I looked at Lawrence — he said, ‘Don’t get any bright ideas.’”

But that conversation set the wheels in motion. Fooks brought it up again later with Schwartz.

“I looked at him and said, ‘I’m going to tell you something right now: We’re going to sell this software,’” Fooks said. “He smiles at me and he knew I was crazy enough to actually push it.”

They continued discussing the opportunity and agreed it made sense to share their software with the industry. By that time, Tchourliaev had exited his previous business, so they asked him to join them as a partner in building Mortgage Automator. They enhanced the software, beta tested with key clients in 2018, and officially launched in 2019. That year, they earned the Innovator of the Year Award, one of the Mortgage Awards of Excellence, and have continued racking up accolades.

CONTINUOUS IMPROVEMENT

The trio hasn’t built a one-size-fits-all solution—it’s been a learning curve for all three partners to understand how differently each company uses its platform. With Tchourliaev’s input, they have made a product that’s flexible and can adapt to various use cases.

LENDER LIMELIGHT  WITH PAVEL TCHOURLIAEV, LAWRENCE SCHWARTZ, AND JOE FOOKS
52 PRIVATE LENDER

“What we learned is quite literally every private lender does something different,” Tchourliaev said.

The product has grown far beyond their expectations, allowing them to meet the needs of lenders in Canada, the U.S., Australia, and New Zealand.

“What Joe and I were building for our company was extremely basic,” Schwartz said. “If there was a pie, it was 1.5% of what we have now.”

Although they have built out many modules for the platform, Tchourliaev said they constantly have new requests from clients for additional functionality.

“We want to continue evolving it to make it better, stronger,” Fooks said. “I think when you stop evolving, it actually hurts you. So, we’re always putting pressure on ourselves internally to say, how can we improve this process? How can we improve this module? How can we make it better in any way, shape, or form?”

As they’ve grown Mortgage Automator, the founders have recognized it’s important to hire local developers rather than outsourcing talent. Tchourliaev said that practice keeps overhead lower and allows them to move more quickly while making fewer mistakes. Fooks said Toronto’s status as a tech hub has benefited the company as it seeks out high-quality programmers.

“That decision was initially a more costly expense to the business but probably one of the best things we’ve ever done, and I thank (Tchourliaev) for that,” Fooks said.

A selling point has been Fooks’ and Schwartz’s deep industry knowledge and the fact they actually use the software in a private lending company they still

FAVORITES?

MOVIE :

Lawrence: Rounders

Joe: Boiler Room and “the most recent Top Gun was up there”

Pavel: The Incredibles

PLACE THEY’VE TRAVELED:

Joe: Positano, Italy

Lawrence: Hawaii

Pavel: “I love so many destinations I’ve been to, I can’t pick a favorite place.”

SEASON:

Joe: Summer, for golfing

Pavel: Fall, for the changing colors

Lawrence: Summer

GUILTY PLEASURE:

Joe: Golf. “Every time I play, I feel guilty.”

Pavel: Occasional video games

Lawrence: “Telling people I already have plans when I don’t have plans.” (Joe dubbed this JOMO, joy of missing out—the opposite of FOMO, fear of missing out.)

PAVEL TCHOURLIAEV LAWRENCE SCHWARTZ JOE FOOKS
FALL 2022 53

run—though initially they weren’t sure whether to highlight that nugget.

THIS OR THAT?

ANDROID OR APPLE?

Lawrence and Pavel: Apple

Joe: Android

TEXT OR CALL?

All: Call

COMEDY OR DRAMA?

Joe and Pavel: Comedy

Lawrence: Reality TV and documentaries

HOT CHOCOLATE OR EGGNOG?

Lawrence and Joe: Hot chocolate

Pavel: Eggnog

MOUNTAINS OR BEACH?

All: Beach

NIGHT OWL OR EARLY BIRD?

Pavel: Early bird. “I’m in bed by 10.”

Joe: Night owl. “I definitely don’t like getting up unless it’s for golf.”

Lawrence: “I’m both.” (Pavel: “You’re an insomniac!”)

“It was something we learned over time was actually a great asset,” Schwartz said. “We learned quickly that people wanted our expertise. They knew that we are experts in the field.”

Fooks said they help clients by providing a roadmap on how to overcome the struggle with day-to-day operations and other pain points, which they can do because they’ve experienced it all. Schwartz said he enjoys watching the trajectory of the businesses that have embraced Mortgage Automator.

“Seeing where clients are when they start with the software to where they are years down the road and their growth as a company—I find that the most rewarding,” he said.

Tchourliaev said their product has made the industry better by introducing new ways of working that makes life easier for clients. But even more satisfying and humbling, he said, is how Mortgage Automator has benefited employees.

“So many people on our team have been able to buy houses in the last several years, start families, et cetera, and so on,” he said. “It’s a huge responsibility, but at the same time, it’s a very rewarding responsibility, in my opinion. I think it’s great that we are able to really take care of our team and our clients.”

MESHING PERSONALITIES

The three co-founders have learned to rely on each other’s strengths to make the business the best it can be. As they

describe each other, they mix admiration and respect with good-natured ribbing.

Fooks is a motivator and a closer, they said.

“Joe is a maniac,” Tchourliaev joked. “Hands down, he’s one of the most hardworking people I’ve ever met. Whether justified or not, he always creates artificial pressure, and he is just moving as fast as he can at all times.”

“Joe will run through a brick wall if he has to,” Schwartz said.

Schwartz brings a different energy to the group with a level-headed and objective perspective.

“He’s one of the most calm, collected, analytical thinkers you’re ever going to meet,” Fooks said. “He’s well-spoken. But the guy just knows how to read the room, understand how people are thinking, understand where their perspective is coming from. … He picks up on things that Pavel and I don’t pick up on—smaller things that are less obvious to us.”

Though Tchourliaev didn’t come from a lending background, his partners admire how much time and effort he put into learning the industry in order to make a better product.

“When we’re talking to potential clients, we just know that Pavel will understand what you’re talking about and take care of it,” Schwartz said. “If Pavel wanted to leave tomorrow and start his own lending firm, he’d be able to do it right. He just knows everything.”

“I think both my partners are really smart people,” Fooks said. “Pavel brings a really different approach—just a

LENDER LIMELIGHT  WITH PAVEL TCHOURLIAEV, LAWRENCE SCHWARTZ, AND JOE FOOKS
54 PRIVATE LENDER

grinder. The guy knows how to put his head down and just figure it out.”

The shared respect makes it easier to come to decisions, Tchourliaev said.

“We really take our time to develop our opinions and we defend our opinions to each other, but we don’t mind switching and changing our views if somebody is more correct than we are in our mind,” he said. “We don’t mind changing our perspective. We all care very, very

much for this business. We all have our own perspectives and ideas, and we’re all extremely respectful of having different opinions from time to time.”

The co-founders say they’ve allowed their personalities to shape their roles within the company. They don’t put much stock in hierarchy, but Tchourliaev said he is CEO because someone needed to have that title.

“We don’t meddle in each other’s business,” Fooks said. “Nobody has

to really feel like they have to get involved in each other’s day-to-day stuff. Everyone has different roles with this company, and we use our strengths to help the business get better.”

“Everything is of the utmost importance—every aspect, no matter what it is,” Schwartz said. “I think the team here sees that we’re willing to step in. No matter what their job is that they need help with, we’re happy to step in and help always.”

They have managed to maintain the careful balance of remaining friends while running a business together.

“I think working with friends is great. You have to be careful,” Fooks said. “We’ve done a really good job of making sure that we all understand what’s on the line, and everyone has the best intentions because this is really special here. Nobody wants to ruin it.” ∞

ABOUT THE AUTHOR

KATIE BEAN

Katie Bean is a former newspaper and magazine editor who loves telling the stories of businesses and great leaders. She is based in Kansas City.

FALL 2022 55

Creating Your Private Lender Virtual Dream Team

Private money lending is a team sport.

Private lending is not like other real estate investing strategies where a do-it-yourself (DIY) approach can be beneficial and save time and money.

Setting up and vetting a virtual team for your private lending endeavors is critical for successfully and safely closing and funding loans—even if you do just a handful of deals a year. This is especially true for private lenders and fund managers who are just getting started or for smaller private lenders interested in scaling or branching out into another market. In addition to providing a necessary extra set of eyes on your loans at various stages of origination, your dream team can help keep your private lending truly passive, if that’s the direction you choose. Here’s what and who you need to know before funding your first deal.

THE PRIVATE LENDER’S DREAM TEAM

You will need several people on your team encompassing a variety of expertise and critical skills sets, including:

Attorney/Real Estate Law Firm. You will need an attorney not only to consult with you on legalities and licensing requirements but also to create your required loan documents.

Your legal team can either create a boiler plate template for you to use regularly or, better yet, draft a document each time you originate a loan. Why is the latter approach better? Although it may cost more upfront to have your attorney create a set of loan docu ments on your behalf, it can save you money in the long run by ensuring these docu ments are airtight, in case anything goes

wrong with the loan. Do-it-yourself loan documents or relying on a title and escrow company to prepare them—which happens frequently—can result in a lender’s inability to foreclose on a secured loan, if not handled properly. Paying for legal fees upfront is always cheaper than paying legal fees on the backend to force performance.

Sample interview questions you may want to ask potential law firms:

Do you have experience with supporting private money lending transactions, not just general real estate transactions?

What should I know about usury laws, private lending laws, and other regulatory or legal concerns before lending out money in this market/state?

What other services do you provide, such as title and escrow closing

56 PRIVATE LENDER FUNDAMENTALS

services? If you don’t do either of those, do you have recommendations for a preferred title and escrow closer?

How much time do you require to get loan documents drawn up for a loan if the borrower needs to close quickly?

Title Insurance Representative. There are numerous reasons to engage the services of a reputable and knowledgeable title company. For starters, you should always get a lender’s title insurance policy with each loan you fund, and preferably a policy called an ALTA Extended policy,

because it has more lender-protection coverage than a standard policy.

Additionally, it’s critically important to clear title before moving forward with a loan to ensure you are placed in first lien position if you are expecting to be a first lien holder. What people may not know is that title departments can be a wealth of knowl edge if you work with the right one. Many are happy to share their knowledge about vesting, deeds, liens, and other title-related challenges you may come across. One small example would be having the title depart ment clear a business entity (i.e., establish

exactly how the borrower signs the loan contract). If you try to do this yourself rather than using legal or title support, you may have the borrower sign as an individual natural person instead of as their business entity. This could potentially result in legal challenges enforcing the loan documents.

Sample interview questions you may want to ask prospective title companies:

Do you work with private lenders like myself and, if so, do you have special underwriting or closing requirements I should be aware of?

FALL 2022 57

FUNDAMENTALS

Do you offer closing services, or can you recommend a third-party closer I should connect with?

Do you offer ALTA Extended lender policies?

How quickly are you able to turn around title commitments?

What municipalities or counties do you cover?

Escrow Closing Services. Depending on the state, an attorney could provide these services, or a third-party professional escrow closing company could provide them. These third-party providers can be tied directly to a national title insurance provider like First American Title and Escrow, or they can be local third-party closers that obtain insurance for your transaction with a preferred title company.

If you go with the latter, you will need to know who their preferred relationship partners are for title services. Not all title companies provide ALTA Extended policies, such as Stewart Title; therefore, you’ll need to be aware of these limitations so you can either request title and escrow be moved to another company or not move forward with the loan at all.

Additionally, you will want to know whether the closer you work with is capable and willing to do creative real estate transactions (e.g., double closings, deals with large assignment fees, private financing, or cross collateralization). Not all closers are created equally; even within an escrow company, the closers you work with can vary in creativity and flexibility. Do your homework before opening escrow so you do not experience any delays.

Sample interview questions you may want to ask potential escrow closers:

Do you provide title insurance services as well?

How much do you charge for transactions? Purchases? Refinances?

Are you able to accommodate a quick closing (fewer than 14-21 days or shorter)?

What are the funding settlement times lines in place currently? Are they different for private lenders?

How do you disburse money from closings?

These last two questions may not seem necessary, but some companies will hold funds for seven days and then will not wire funds to the private lender; they’ll only issue checks. Do not take for granted

that you understand the service levels and standards of your escrow closer.

Contract Servicing Provider. To help manage your loan, any monthly installment payments, and end-of-year tax documents, a servicing provider can be a great help. Most provide automated withdrawals (known as an ACH withdrawal) from the borrower’s accounts, which can significantly increase the likelihood of your loan remaining current. Automating deposits into your account each month also streamlines your efforts after the loan closes by providing notification services to the borrower if the loan is late or in default.

Be sure to ask for recommendations and feedback from other lenders about their preferred servicer, as service levels vary greatly from company to company. Local banks and escrow companies may be a good alternative if you are funding only a handful of deals annually. It’s important to review any master agreements, fee schedules, and timelines needed to onboard a loan before engaging a thirdparty servicer.

Sample questions you may want to ask contract servicers:

Do you have a fee schedule you could share with me?

Do you prepare end-of-year tax statements (1099-INT and 1098-INT)?

What is the timeline required to provide the documents once requested?

What are your typical service-level agreements (SLAs) for requests such as payoff demands, lien release/reconveyance services, and customer service inquiries?

How can borrowers make payments, and do the fees change depending on the way payment is tendered? Is there an online portal? Are borrowers able to pay with a credit card? Can borrowers pay over the phone or mail a payment?

For brokers or direct placement lenders: If I am originating this loan on behalf of my client, what kind of account access would I have, if any, to help support this loan after it’s placed in service?

DREAM TEAM BENCHWARMERS

There are several other key relationships you may want to build to help ensure your loan opportunities are properly underwritten and protected. Depending on your current level of knowledge and skills, you may want to employ the services of the following:

A real estate professional who can help with your property valuations.

A property insurance agent to help review insurance documents to ensure proper coverage and/or to review the insurance binder.

Determine where your blind spots are when it comes to finding and funding a loan. Then fill in the blanks before you ever get started.

DON'T GO IT ALONE

You will definitely need to find an experienced and well-qualified attorney, a competent third-party loan servicer, and title and escrow services to assist you from loan inquiry to final principal payoff.

Filling these three critical roles ensures your loan is set up for success from the beginning. Although there are great foreclosure attorneys and asset recovery specialists in the industry, engaging their services is always a last resort.

In private lending, you don’t need to know it all. Build your team with people who can provide expert services to support and protect you every step of the way. ∞

ABOUT THE AUTHOR

BETH JOHNSON

Beth Johnson is co-founder and managing partner of Flynn Family Lending, a family-owned private lending business offering creative financing solutions throughout the state of Washington.

Before getting into private lending, Johnson spent 20 years in the tech and telecom industries managing all aspects of corporate training and communications, while investing in real estate on the side.

As a real estate investor, she and her husband have experience in wholesaling and flipping, and they now prefer to invest in small multifamily properties.

FALL 2022 59

UNDERSTANDING MEZZANINE DEBT AND KEY INTERCREDITOR ISSUES

Make sure you are familiar with the operational and structural considerations of mezzanine financing.

Mezzanine financing provides lenders an attractive opportunity to achieve higher returns than they would with a standard real estate loan. Before engaging in mezzanine financing, a lender should carefully evaluate the risks associated with a mezzanine loan. Part of this analysis involves understanding the typical intercreditor agreement (ICR) executed as part of a mezzanine financing. Let’s review some of the key intercreditor agreement provisions that favor a mezzanine lender.

BRIDGING THE GAP

Mezzanine debt, often referred to as “mezz debt” or “gap financing,” is a form

of debt frequently used to bridge the gap between senior financing and pure equity. Employing mezzanine financing benefits a borrower by increasing leverage without resorting to equity, which dilutes a borrower’s ownership structure.

In a typical estate loan transaction, the senior lender’s maximum loan-to-value requirement, or LTV, will dictate the maximum loan amount. For example, if a lender’s maximum LTV is 65%, that means the lender will fund a loan not more than 65% of the value of the real property collateral. If a real property has a value of $1,000,000, this translates into a maximum loan of $650,000. The borrower must fund the $350,000 difference. If the borrower has $200,000 of its own funds, another $150,000 is still required to fully fund the project. This

$150,000 is a gap that can be filled with mezzanine financing.

LOAN STRUCTURE

A common mezzanine loan structure involves two separate loans. The first loan is a real estate loan a senior lender funds for a borrower who owns the real property collateral (the real property borrower). This loan is secured by a first priority lien on the real property.

The second loan is a subordinate mezzanine loan made to the owner of the real estate borrower (the mezz borrower) and is secured by the mezz borrower’s collateral pledge of 100% of the equity interest in the real estate borrower. This structure exposes the mezzanine lender

60 PRIVATE LENDER
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to the risk of not having a direct lien on the real property collateral. Due to this, a mezzanine lender relies upon the real property having a value greater than the senior loan amount.

If a senior loan default results in a foreclosure of the real property collateral, the mezzanine lender can be left without any assets to support repayment of the mezzanine loan. This risk is addressed in an ICR executed between the senior lender and the mezzanine lender.

KEY INTERCREDITOR AGREEMENT PROVISIONS

The ICR is perhaps the most important document in a mezzanine transaction.

Understanding the key provisions are vital to a mezzanine lender’s ability to underwrite the risks associated with a mezzanine loan.

An ICR is a legal agreement between a senior lender and a mezzanine lender that sets out their respective rights and reme dies in relation to the senior loan and the mezzanine loan. The ICR provisions ref erenced below are often highly negotiated and vary from transaction to transaction.

Foreclosure on separate collateral. The provisions addressing when a mezzanine lender can foreclose on the equity pledge of the real estate borrower’s equity interests—generally known as the Separate Collateral—are critical to any ICR. A typical ICR will prohibit a mezzanine lender from foreclosing on the Separate Collateral unless the mezzanine lender: 01 Agrees to acknowledge that the real property borrower remains subject to the senior real estate loan.

02 Causes the real property borrower to reaffirm all the provisions of the senior loan and senior loan documents.

03 Cures all defaults under the senior loan if they are capable of being cured.

04 Provides a replacement guarantor in support of the senior loan. When a mezzanine lender realizes upon the Separate Collateral, it takes over ownership of the real estate borrower and will be required to comply with the terms of the senior loan. This requires a mezzanine lender to have a complete understanding of the senior loan and to have undertaken its own

exhaustive underwriting of the senior loan transaction.

Modifications or amendments to loan documents. A typical exit strategy for a mezzanine lender is to be paid off upon the refinancing of the real property or upon the sale of the real property. Either way, the value of the real property is crucial to a mezzanine lender’s ability to be repaid. If the real property’s value is insufficient to pay off the senior loan, the mezzanine lender will bear the shortfall. Accordingly, a mezzanine lender has a vested interest in preserving the status quo of the senior loan amount. An ICR accomplishes this by prohibiting

the senior lender from making certain amendments or modifications to the senior loan documents that, among other things, increase the principal balance of the senior loan or increase the interest rate applicable to the senior loan.

Subordination of mezzanine loan. A critical provision in each ICR is the subordination of the mezzanine loan to the senior loan. Under a typical ICR, the mezzanine lender subordinates its loan to the senior lender’s rights to payment under the senior loan. The mezzanine lender is prohibited from accepting or receiving any payments under the mezzanine loan until the senior loan is repaid in full.

62 PRIVATE LENDER
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The prohibition against payment generally applies only when the mezzanine lender receives notice of a default under the senior loan. Upon receipt of such notice, all pay ments the mezzanine lender receives are to be held in trust for the benefit of the senior lender. If a senior loan default is cured or waived by the senior lender, some ICRs per mit the mezzanine lender to receive “catch up” payments of all missed payments that were prohibited during the continuance of a senior loan default. Mezzanine lenders should note the possibility of not receiving debt service payments and build that risk into their credit analysis.

Right to cure. A typical ICR evidences a mezzanine lender’s right to cure a senior loan default—both monetary and nonmonetary defaults. For obvious reasons, a mezzanine lender wants to avoid a foreclosure of the senior loan and preserve the real property collateral as a source of repayment.

To facilitate this right, the senior lender is required to provide the mezzanine lender written notice of any senior loan default and an opportunity to cure the default. The mezzanine lender is generally given the same cure period afforded the real estate borrower under the senior loan documents.

Some, but not all, ICRs will limit a mezzanine lender’s right to cure a monetary default to just three payment defaults. After the third monthly payment default, the mezzanine lender loses the right to cure the senior loan default and the senior lender is free to exercise remedies. In order to effectuate a cure, the mezzanine lender must remit to the senior lender full payment of all unpaid principal, interest, and fees.

Right to purchase the loan. Another critical protection afforded a mezzanine lender under a typical ICR is the right to purchase the senior loan. The purchase option is usually triggered by the senior lender’s acceleration of the senior loan or the senior lender’s commencement of enforcement actions against the real property. In either case, the senior lender will be required to provide the mezzanine lender with notice of the triggering event.

Upon receipt of such notice, the mezzanine lender must provide written notice to the senior lender of its intent to purchase the senior loan. The purchase price of the senior loan can be a highly contested matter. A senior lender will demand the senior loan be purchased at par, together with all unpaid interest and fees. A mezzanine lender will generally try to purchase the loan for less than par and limit the associated fees and expenses due to the senior lender.

Upon completion of the purchase, the senior lender will transfer and assign all the loan documents to the mezzanine lender, who then steps into the shoes of the senior lender. The mezzanine lender can then complete a foreclosure or other disposition of the real property collateral to repay the senior loan and the mezzanine loan.

A mezzanine lender should be aware that the purchase option will automatically expire upon a transfer of the real property by a foreclosure sale, trustee’s sale, or the delivery of a deed in lieu of foreclosure. This places a burden on the mezzanine lender to exercise its purchase option in a timely manner or risk losing the real property collateral as a source of repayment.

Lenders can achieve higher returns through mezzanine financing, but this type of financing also comes with risks not associated with standard real estate loans. Before you enter any mezzanine financing agreement, make sure you understand those risks and how to minimize them. ∞

ABOUT THE AUTHOR

DARREN ROMAN

Darren Roman is a senior attorney at Geraci LLP in the banking and finance group. He has extensive experience structuring and documenting complex loan transactions for banks, private lenders, brokers, and developers. He also has extensive experience representing lenders in new markets tax credit financings and bank as trustee and fiscal agent counsel in tax-exempt bond financings. Mr. Roman takes a solutionsbased approach to each transaction.

FALL 2022 63

Are You Prepared for Delinquency and Default?

Abrief synopsis of the default landscape according to ATTOM’s Midyear 2022 U.S. Foreclosure Market Report, published in mid-July 2022, includes the following:

In the first six months of 2022, a total of 164,581 U.S. properties are in default as defined by foreclosure filings, default notices, scheduled auctions, or bank repossessions. This figure represents an increase of 153% from the same period in 2021, but it’s down just 1% from the same period in 2020.

States with the highest foreclosure rates in the first half of 2022, in order, were Illinois, New Jersey, Ohio, Delaware, and South Carolina. Other states with the highest first-half foreclosure rates among the 10 highest nationwide were Florida, Nevada, Indiana, Georgia, and Michigan.

Lenders foreclosed (REO) on a total of 20,750 U.S. properties in the first six

months of 2022, up 30% from the last half of 2021 and up 113% from the first half of 2020.

States that posted the greatest number of REOs in the first half of 2022 included Illinois (2,434 REOs), Michigan (2,259 REOs), Pennsylvania (1,290 REOs), California (1,043 REOs), and Florida (1,041 REOs).

It seems the U.S. is basically getting back to pre-pandemic levels of delinquency. However, it is important to note that much of the current foreclosure activity, “is on loans that were either already in foreclosure or were more than 120 days delinquent before the pandemic,” stated Rick Sharga, executive vice president of market intelligence at ATTOM.

This report and others have not specifically identified how many of these foreclosures are commercial or business purpose loans, but these figures appear to demonstrate increased delinquency across the board.

PREPARING FOR A RISE IN DELINQUENCIES

How do private lenders prepare for the current and inevitable rise in delinquencies? Here are a few tips to consider: Maintain close and regular communication with borrowers. Once the loan closing is complete, borrowers deal with the construction escrow department for draws, but the loan originator and borrower often do not really communicate post-closing.

Consider establishing a postclosing individual or team—a lender representative. From the inception of post-closing, the representative should attempt to schedule a regular call with borrowers every two or three weeks to

Many private lenders are tracking rising delinquencies and starting to feel the realities of the current market.
64 PRIVATE LENDER OPERATIONS

discuss updates on renovations, budget, income/expenses, marketing, sales/leases, property management, and related issues.

Instead of simply reminding a borrower about payment obligations and deadlines, frame the conversation as an opportunity to collaborate, assist and encourage, and let the borrower know you are both on the same team. For example, if a borrower is having trouble with an inspector or a subcontractor, maybe the lender can connect the borrower with another current or former borrower in the same region who could assist. Similarly, in regions where your operation has or had issued a decent volume of loans, consider assembling a resource list of consultants/ professionals you can use and share with borrowers. Keep an open mind. Even though a borrower is current, you may determine based on conversations and other

information, there is a likelihood of trouble ahead. Be prepared to present flexible options to prevent actual default (e.g., extensions or refinancing).

Approach the discussions as an advisor who’s being helpful and providing assis tance and guidance rather than putting on pressure. A borrower who feels too much stress with respect to the building project and meeting financial obligations often becomes overwhelmed and tends to disengage, leaving the project and loan payments at risk. Engage counsel, if necessary. If the previous suggestions did not prevent default and a borrower misses a payment, schedule a brief call with local counsel. If you need assistance obtaining local coun sel, there are various resources available through the AAPL.

Since default on commercial or business purpose loans has been very sparse

in recent years, many lenders may not be familiar with the default process in particular states or regions. It is important to understand the process, timeline, costs, fees, etc., in order to effectively negotiate a resolution with a borrower.

Don’t give up on resolving out of court. Simultaneously protect your creditor rights while aggressively pursuing non-litigation options. Have counsel send the statutory and/or demand notice pursuant to the loan documents as soon as possible, but make it clear to the borrower you are committed to a non-litigation resolution. Try not to lose time and “wait” for a payment or a refinance closing; continue with the judicial or non-judicial process.

Continue to pursue legal remedies while attempting to settle with the borrower. Again, it is important not to let your foot off the gas in protecting creditor rights; however, it is equally important to strive for an out-of-court resolution.

Consider putting pressure on guarantors and implementing a receiver, or at least request permission from the court to appoint one so you can take over a struggling project or collect rental income, if necessary. Remember, even after a judicial or non-judicial sale date, you may still be able to work out a resolution with the borrower. If some standard resolution options are not practical or possible, consider contacting a few former (successful) borrowers in the

FALL 2022 65

area to see if they would be interested in taking over the project/loan.

Although lenders can never be fully prepared nor foresee borrower delinquen cies, it is important to be diligent in your efforts to connect and communicate with borrowers regularly and to maintain close relationships. Maintaining close relation ships will increase your ability as a lender to foresee borrower delinquencies and increase the possibility of workout options and eventually get paid.

As we all know, time is money. Because delinquencies have risen in recent years and are expected to continue to rise, it is imperative that lenders have a plan of action with their legal counsel so you can

be prepared for next steps, if necessary. Although communication with borrowers is encouraged, lenders should focus on

ABOUT THE AUTHOR ERIC FELDMAN

protecting their own interest and being prepared to take legal action before the influx of delinquencies. ∞

The focus of Eric Feldman's legal career has been diligent advocacy and solving the problems of businesses and individuals creatively and cost-effectively.

He brings more than 20 years of experience representing all types of creditors: banks, asset managers, servicers, private lenders, developers, and investors in various types of residential and commercial real estate transactions, foreclosures, evictions, and bankruptcy matters. Eric Feldman & Assoc., P.C. also manages default litigation for investors/ servicers in all states, creating a centralized approach to handling multistate portfolios.

66 PRIVATE LENDER
OPERATIONS

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ADDRESSING

Understanding common issues with REO properties is the first step in protecting your investment.

ISSUES

68 PRIVATE LENDER OPERATIONS
REO/LENDER-PLACED INSURANCE COVERAGE

In the first six months of 2022, lenders foreclosed on a total of 20,750 U.S. properties. This number is up 30% from the last half of 2021 and 113% from the first half of 2020. Double-digit increases are expected in the coming months. You should be prepared to secure insurance on these properties to protect your interest in the property.

REO INSURANCE CONSIDERATIONS

Completing regular inspections of your properties has always been important. Recently, this has become increasingly necessary to protect your investment and to limit losses associated with fire, water, or neglect.

Your properties can sit vacant without any measure of mitigation for damage not visible from the outside of the home. If you have access, it is a good idea to have someone go inside the home to ensure there are working smoke detectors, turn off the water, and drain the system. Vacant homes are also subject to being entered by those seeking shelter, which can lead to additional damage to the property.

Securing the home is a large part of making the property unattractive to unauthorized occupants. Installing deadbolts, cameras, alarm systems, and motion-sensor lights is the best way to deter thieves and squatters.

On occasion, lenders may be unable to remove the borrower or tenant from the home that was the subject of the foreclosure. In these circumstances, a regular drive-by of the property will provide details on the condition of the property.

Finally, confirm the appropriate cover age amount for the location and relay

the appropriate occupancy status to your insurance carrier; avoid delays in reporting claims as they occur to prevent challenges in a claim scenario.

COMMON CLAIMS ON REO POLICIES

At the height of COVID in 2020, the number of claims on REO properties decreased significantly. This dip was likely due to foreclosure moratoriums but was mainly a result of a less severe hurricane season. In 2021, claims frequency trended back to 2019 levels due to severe weather events, including the polar vortex in Texas and hurricanes Elsa and Ida.

Weather patterns are shifting. Wildfires are increasing in frequency and severity in the West, and Tornado Alley is moving away from the Plains and into the Southeast.

However, the most common types of claims made on REO policies (fire; vandalism/theft; and wear-and-tear, water-related, and weather-related losses) remain relatively consistent.

MITIGATING LOSSES

Here are some steps you can take to mitigate most of these losses from occurring at your REO properties.

Fire: Commonly covered. Fire losses on vacant properties are frequently a result of unauthorized occupants setting fires for heat. These fires can easily get out of control and damage the property. One of the most important things you can do at any REO property is secure the

premises to keep out squatters. And, if you leave the electric power on, be sure to unplug all electric appliances. This will help you avoid the risk of a fire loss should there be a faulty switch or other issue. If you have access to the inside of the home, ensure there are working smoke detectors.

Though less common, another fire risk for foreclosed properties is arson by a disgruntled borrower. Arson is often challenging to prove from a criminal perspective, but in most cases, arson will likely be covered.

Vandalism/Theft: Commonly covered and denied. Thieves looking for copper (pipes, AC condensers, etc.) may attempt to enter your vacant property. If it is apparent your property is not occupied, vandals know there is a reduced risk of being caught.

Taking steps to board and secure your property can help mitigate the risk of vandalism and theft. Protect all windows and glass doors against glass breakage. Consider maintaining the property by regularly mowing the lawn, performing routine repairs, and visiting weekly to ensure the property remains secure.

Aside from these protective safeguards, you may consider Special Form coverage because it adds theft. These losses are often denied because the policyholder has Basic Form (excluding theft), or the property was not secured properly.

Wear & Tear Leading to Water Damage: Commonly denied. Wear and tear on your roof can lead to water damage inside the home. This claim is often denied because the insured did not regularly check the roof.

FALL 2022 69

To mitigate these types of losses, check the roof for spots that may be worn-out and make repairs when necessary.

In general, insurance is not intended to cover wear and tear. It is intended for sudden, accidental damage, so wearand-tear claims are denied, especially as foreclosure homes tend to sit vacant and fall into disrepair. General upkeep can save headaches down the road.

Intentional Damage: Commonly denied. As noted previously, insurance is intended to cover accidental damage. Although arson may often be covered, intentional damage by the tenant or former owner (borrower) will likely not be covered.

Water-Related: Commonly covered and denied. While water losses are not the most common type of property claim on REO properties (about 17%), they are among the most commonly denied property loss claim, making up about 30%.

Water damage can occur as a result of frozen pipes or a failure in the plumbing. These claims are commonly covered if the insured has Special Form Coverage because this policy adds water damage, whereas Basic Form excludes it.

In colder climates or months, the most important thing you can do to mitigate water-related losses is to winterize the home. This includes turning off the water supply to your property. Leaving the water on when the lines aren’t going to be used can lead to leaks or burst pipes, which can cause a lot of damage.

If your property is in an area where freezing pipes can be an issue, the water could freeze and expand. If you have access to the home, drain any remaining

water in the pipes. You can drain the waterlines by opening all the faucets and allowing the water to run until it becomes a slow drip. Also flush all toilets, and when the tanks have drained, flush them once more to empty the bowls.

You do not want to turn the furnace off completely; doing so could also cause the pipes to freeze and break. Instead, turn the thermostat to around 60 degrees to keep your property’s systems and components near room temperature, where they are meant to be. Your heating bill will be less than the cost of potential repairs and taking steps to maintain the appropriate temperature will help avoid water claims challenges.

If your property is located in a warmer climate, you should still consider turning off the water supply, because failure in the plumbing may occur without regular use.

Weather-Related: Commonly covered. Wind/hail losses are the most common weather-related claims, accounting for almost 40% of all property claims on REO properties. These weather phenomena are common in coastal and Midwest areas. These forces can lead to roof damage, broken windows, or damage to detached structures like garages and sheds.

Weather-related losses are largely based on where your property is located, so unfortunately, there isn’t much you can do to mitigate these. But, several standard exclusions can be bought back by endorsement or on a standalone policy. Some that can be purchased separately include earth movement and flood.

Understanding common issues with REO properties is the first step toward

protecting your investment. Now that you know what types of losses can put your properties at risk, take action to prevent them.

Shawn Woedl, CEO, joined National Real Estate Insurance Group in 2014 and has been instrumental in growing it into the largest insurance program in the country for residential investment properties, insuring nearly 140,000 locations today and growing.

Through Woedl’s efforts, the NREIG program has expanded to accommodate investment properties up to 20 units, vacation rentals, and non-performing notes, just to name a few. He has also introduced a suite of ancillary coverage options designed to fill any gaps investors may experience in their property and liability coverage to meet or exceed any lending requirements.

He is responsible for overseeing all aspects of the agency, specifically focused on maintaining strong carrier and industry relationships, developing new and innovative product offerings, and managing internal sales and service processes. With more than 15 years in the industry, Woedl is a recognized speaker and educator with an expertise in commercial property insurance.

SHAWN WOEDL
70 PRIVATE LENDER
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Ho w Inflation Is Impacting Insurance Premiums

replacement costs, known as “coverage A.” If materials and labor have risen an estimated 20% since last year, you can typically expect your policy to go up 14% based on the replacement cost alone.

Here’s what that math ends up looking like:

70% of premium x 20% = 14% increase in premium costs

Let’s assume we have a three-bedroom, two-bathroom, single-family rental located near Cleveland, Ohio, with an annual premium of $1,500. The premium may now be closer to $1,710 a year.

Here’s what that math looks like:

$1,050 (70% of Premium) x 20% = $210 increase in premium costs

Insurance premiums across the board are increasing at a fever pitch due to rising inflation and the increase in catastrophic weather events. Although there are a few practical ways to keep insurance costs from rising, inflation, labor trends, supply chain issues, and weather events are all out of the control of investors—and their wallets are likely to bear the burden.

Let’s take a look at how inflation is directly impacting real estate investors, from an insurance perspective, as well as a few of the options for avoiding unnecessary increases in premium price.

CALCULATING INSURANCE PREMIUM PRICING

When calculating premium pricing, insurance companies look at a variety of factors to determine the policy cost. These factors include, but are not limited to:

Number of claims

Type of claims

Age of the home

Age of the roof

For example, about 70% of a policy is priced on the value of the property’s

WHY INSURANCE LIKELY INCREASED THIS YEAR

Housing material and labor costs have increased. Material and labor directly affect insurance premiums due to the replacement cost. Replacement cost, based on how it is calculated, makes up a majority of the cost of your insurance premium.

Rising costs of materials. We have all seen the price of lumber rising along with other commodities associated with rebuilding a home. Because overall buying power has been reduced, the price for materials alone has gone up exponentially.

Price per gallon of gas. The price of gas by the gallon directly affects the cost of the transportation of all goods,including the importing and transporting of building materials. As gas prices continue to rise, suppliers, service providers, and

Inflation is affecting real estate investor insurance rates — and will hurt returns.
72 PRIVATE LENDER OPERATIONS

U.S. REGULAR CONVENTIONAL GAS PRICE

5.0

4.5

Dollars per Gallon

4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5

1992 1994 1996 1998 2000 2002

Shaded areas indicate U.S. recessions.

retailers across the country need to adjust their prices. This leads to an increase for nearly all goods and services, including those required to repair and replace homes. Insurance providers also must account for the increase in prices, which is reflected in their insurance premiums.

2004 2006

Source: U.S. Energy Information Administration fred.stlouisfed.org

Rising cost of lumber. Lumber futures, although down from earlier in the year, are still up tremendously from pre-pandemic levels. The dramatic increase strains all industries requiring lumber, including those involved in replacing dwellings. The extremely high

demand for new housing also factors into the increasing replacement costs for existing dwellings.

Labor shortages. Wage increases impact the rebuild cost of a property. Supply and demand also increased the cost of skilled labor. Supply of labor has been

RANDOM LENGTH LUMBER FUTURES (CONTINUOUS: CURRENT CONTRACT FRONT)

2001

Source: Tradingview.com

1500 1400 1300 1200 1100 1000 900 800 600 500 400 300 200 100

FALL 2022 73
2008 2010 2012 2014 2016 2018 2020 2022
2004 2007 2010 2013 2016 2019 2022 707

limited due to a national shortage of trade workers. As of April 2022, the construction industry is down by about half a million skilled workers. When you combine those

two factors, the results are wage increases of more than 10% year over year. The trend is not expected to slow during the next 12-18 months.

AVERAGE HOURLY EARNINGS OF ALL EMPLOYEES, TOTAL PRIVATE

With roughly 20% of the replacement cost of an investment property being labor cost and commodity cost, the price to replace a property has increased significantly due

Dollars per Hour

Shaded

Source: U.S.

Information

fred.stlouisfed.org

74 PRIVATE LENDER
OPERATIONS
32.5 30.0 27.5 25.0 22.5 20.0 2008 2010 2012 2014 2016 2018 2020 2022
areas indicate U.S. recessions.
Energy
Administration

to no fault of the insurance company. When those costs increase, the price of insurance premiums will likely increase as well—upward of 20%-30% year over year in some areas.

Severe weather. Catastrophic storms have increased in severity and frequency. 2020 produced 22 billiondollar storms—smashing the previous record of 16. Many have predicted that 2022 is likely to be a particularly bad year in terms of weather.

Increasing rents. A small, but significant percentage of a policy cost pays for a displaced tenant and the lost revenue on a property (Coverage D with most

1980–2020 YEAR-TO-DATE UNITED STATES BILLION-DOLLAR DISASTER EVENT COUNT (CPI-ADJUSTED)

FALL 2022 75
25 20 15 10 5 0 25 20 15 10 5 0 Number of Events Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2019 2016 2011 2017 2020 Average

OPTIONS FOR REDUCING PREMIUMS

IS RISING, AND DEBT SERVICE COVERAGE IS THE

OF

OF THE

carriers). As rental income climbs, so does the premium. This is important to note: Between 5%-10% of premium costs land in this section. Rents in many areas have gone up as much as 20%-25% in the last 18 months. With increases like this, you can expect a policy premium to adjust in kind.

Here’s what this looks like:

20% (rent increases) x 5% (premium costs) = 1% gross premium increase

This also serves as a reminder to continually update a property’s income and to ensure investors make these policy adjustments annually.

Despite the rising costs of goods and services, increased severity of catastrophic weather events, and other factors linked to the rise in insurance premiums, real estate investors have options.

Here are several things investors can do to avoid unnecessary increases in insurance premiums:

Remaining claims-free for five or more years

Consistently maintaining property to avoid deferred maintenance issues and claims Exploring payment options like automatic payments or paying for the year in full

76 PRIVATE LENDER OPERATIONS
“ THE COST
INSURANCE
NAME
GAME.” We’ve launched our all-new member directory, but your profile needs your input in order to look its best! Log into your AAPL member dashboard at aaplonline.com/ dashboard to add your: • Company logo and description • Industry sector • Service area • Contact information and more!

Increasing the deductible

Replacing roofs that are 20+ years old Considering new or different building materials that help reduce risk when building new

The cost of insurance is rising, and debt service coverage is the name of the game. Increases in expenses may make underwriting and getting a loan more challenging. It also creates risk for lenders when the borrower tries to obtain a policy that is as cheap as possible to make sure they can close. Borrowers facing cash crunches will likely forgo coverages or may even default on the insurance in an effort to pay for the debt service. Be prepared to see higher-than-average deductibles, lower liability limits, and borrowers attempting

to game the premium cost by calculating replacement cost at a level that may turn out to be unacceptable.

ABOUT THE AUTHOR

As an investor, be sure to ask your insurance companies how they can help borrowers avoid high-cost insurance. ∞

Ryan Letzeiser is a seasoned real estate investor and technology executive with years of experience acquiring, developing, managing, and disposing of apartments, shopping centers, and senior living facilities. He’s been involved with more than $750 million in real estate investment transactions.

Letzeiser is the co-founder of Obie, an insurance management platform for small- to medium-sized multifamily and commercial real estate owners. The Obie platform helps owners gain access to riskmanagement tools and carriers to help decrease insurance spend on their assets in an effort to create higher yields, IRR, and cash flow.

FALL 2022 77
AAPL MEMBER SPOTLIGHT YOUR NAME HERE. >> ALSO YOUR COMPANY! The AAPL Member Spotlight offers the opportunity for our entire network to get to know you, your experiences, and how you have benefited from your AAPL membership. Check out past Spotlights at aaplonline.com/spotlight, then complete the form at aaplonline.com/spotlight-form to step into the spotlight yourself!* *Members are added to the Spotlight queue in the order in which they are received. You must have Named Member status at publish time. AAPL MEMBER SPOTLIGHT YOUR NAME HERE. >> ALSO YOUR COMPANY! The AAPL Member Spotlight offers the opportunity for our entire network to get to know you, your experiences, and how you have benefited from your AAPL membership. Check out past Spotlights at aaplonline.com/spotlight, then complete the form at aaplonline.com/spotlight-form to step into the spotlight yourself!*

Remembering Aaron Norris

The real estate industry lost a visionary, thought leader, and philanthropist this summer. Aaron Norris, vice president of The Norris Group, succumbed to stage 4 intimal sarcoma, a rare cancer, on July 1, 2022. He was 45.

Despite his life being cut short, he made an outsized impact on the industry through lobbying at the state and national

level as well as forecasting trends in the market and in technology.

A TEAM PLAYER

Aaron worked with his father, Bruce, at The Norris Group in Riverside, California, getting his start in the industry as a preschooler.

“My first memory of flipping was being armed with a vacuum, sucking up roaches all afternoon after the carpet was ripped up from the house,” Aaron said to AAPL’s sister company Think Realty in 2019.

After that less-than-glamorous introduction to real estate, he spent his early career performing in musical theater productions in New York City. In time, he

78 PRIVATE LENDER SPECIAL TRIBUTE

returned to California to join the family business and complete his MBA in 2009.

He was a private lender, real estate investor, and host of the “Data Driven Real Estate” podcast. Aaron had a deep appreciation for data and technology and constantly sought to learn how both would impact the real estate industry.

Aaron’s accomplishments were almost more remarkable given Bruce’s legacy.

An industry veteran, Bruce gained notoriety with his controversial—but correct—“California Comeback” market report in 1997. Aaron was by his side for the release of his next big predictions in 2005, the “California Crash” report. The two made a great duo: Bruce mined the data, and Aaron focused on education and storytelling to help the average real estate investor learn from their research.

Both Norrises felt compelled to bring others along through their success. They shared their market discoveries widely rather than keep the information close to the vest.

“(Aaron) has always been a teambuilder. It’s just who he is,” Bruce told Think Realty in 2018.

AN ADVOCATE

As he worked to help others, Aaron strived to carve his own path. Eddie Wilson, CEO of the American Association of Private Lenders and Think Realty, said he and Aaron often discussed how their fathers’ notoriety in real estate cast a long shadow.

“We always talked about stepping out from legacy we’ve been given and using it as a stepping stool to do more,” Wilson said.

“This industry provided a lot of legacy for our families, so this burning desire to give back in some capacity—that was always kind of the premise of our conversation.”

One notable area of interest for Aaron was impacting legislation to benefit the private lending and real estate investing industry. He joined AAPL and Think Realty on several trips to Washington, D.C., to meet with lawmakers. Most recently, as a representing member of AAPL, he advocated in California against a “flip tax” the state had proposed to levy on real estate investors. Wilson said that if the tax had gone into effect in California, other states likely would have followed its blueprint. However, Aaron was among the advocates who helped lawmakers decide to scrap the measure, working tirelessly to benefit other private lenders and real estate investors even while he battled cancer, Wilson said.

A GENEROUS EXPERT

Ever the educator, Aaron embraced AAPL and Think Realty and their platforms to reach others in the industry. As a contributor, he explained trends he had identified so readers could capitalize on them. He also freely shared his research and data with the American Association

of Private Lenders and Think Realty to benefit both lenders and real estate investors, Wilson said.

“He was always there to support them, and that’s what made the greatest impact: He was coming from a place of extreme knowledge,” Wilson said.

Aaron’s desire to support the industry aligned with the mission of both organizations, which made him a valuable resource. Wilson said Aaron would provide valuable feedback, both positive and constructive criticism, and helped the organizations refine their focus.

Although he loved to share his knowledge, Aaron understood there was always more to learn, said Craig Johnson, senior vice president of the former AAPL & Think Realty’s Presidents’ Circle. Johnson said the group, a mastermind gathering, recruited Aaron to join because his wealth of knowledge on legislative matters, economics, and market trends was

FALL 2022 79

extremely valuable. Considering what he would bring to the table, Johnson offered Aaron a reduced membership. Aaron’s reply was one Johnson said he’d never forget.

“He did not accept the discount,” Johnson said. “He paid substantially more than what I offered him to join the club. … He demonstrated that he felt an obligation to pay his dues to be a member because of what he got out of it. He spelled out the fact that this group allowed him to be more involved from the legislative piece, to interact more with people, and gain more from [others] in the mastermind.”

Despite his stature in the industry, Aaron continued to make time to be a sounding board, whether for the Presidents’ Circle or individuals, Wilson said.

“Aaron was extremely kind and extremely generous,” Wilson said. “Any time I texted him and said, ‘Hey, you have time for a conversation?’ he cleared stuff, he made room. That was really impactful because we all get busy. He understood that people were his purpose in life.”

A KIND LANDLORD

Aaron’s generosity was felt not only by his colleagues but also by his tenants, said Carmen Fields Carter, managing editor of Think Realty magazine and a close friend of Aaron’s. As a real estate investor, Aaron’s main interest was in buy-and-hold proper ties. She recounted two stories he shared with her about tenants in difficult situations.

One tenant was a single mother who was facing eviction. Her hours had been cut at work, so she asked Aaron to reduce her rent for a quarter to give her time to catch up. He did, and she had no further

problems making payments. Another renter was a hoarder whose living situation became untenable. Aaron paid for a dumpster and contacted mental health organizations to try to find help for the man so he could safely stay in the home. Ultimately, the renter didn’t comply and had to be evicted, but Aaron did everything he could before exercising that option, Fields Carter said.

“One of the things I admired most about him is that he always did what was right. That’s very hard to find,” she said. “His life was based on doing what’s right, no matter what. And I think that’s why he’s made such an impact on so many people.”

A PERPETUAL GIVER

In addition to sharing his time and knowl edge, Aaron has had a profound impact through charitable giving. In 2008, he and his father hosted a gala called “I Survived Real Estate” as a nod to the impact many in the industry experienced at the begin ning of the Great Recession. The event has continued, bringing together thought leaders and raising more than $1 million for Make-A-Wish Orange County & the Inland Empire and St. Jude Children’s Research Hospital. The event will con tinue this year, taking place Oct. 28 at the

Aaron’s diagnosis of intimal sarcoma came in May 2021. Doctors found a tumor on his heart that turned out to be malignant. He continued thinking of others as he fought for his life, establishing the Aaron Norris Creative Fund through the Inland Empire Community Foundation. The fund will allow him to continue to make an impact on his community by supporting arts programs in the Inland Empire region of California.

“He was just a pure angel on earth, such a good guy,” Fields Carter said.

“He was always making sure everybody else was good, no matter how busy he was. He was very selfless, making sure he connected with everybody. And if you needed something, he would figure out a way to be helpful.”

To honor Aaron’s legacy and achievements, Think Realty plans to name the Governmental Relations Committee after him and create the Aaron’s Impact Award. The award will be part of the annual Think Realty Honors Showcase. Aaron’s genuine desire to create a positive impact on both the private lending and real estate investing industry will be greatly missed. Because of this, AAPL and Think Realty intend to continue to honor Aaron’s legacy.

Richard Nixon Presidential Library and Museum in Yorba Linda, California.
80 PRIVATE LENDER
SPECIAL TRIBUTE

You won’t find REI news there.

Stay up to date on the issues your borrowers care about with a free Think Realty membership. We are the premier media platform for real estate investors, offering news, education, tools, and resources across every sector of the industry.

Learn more and start for free today at thinkrealty.com/join.

13TH

ANNUAL CONFERENCE

The Nation’s Largest Private Lender Event

2022 brings you 3 days of packed sessions, 65+ exhibitors, and 600+ attendees with whom to network and learn.

OCT. 19-21 2022 LAS VEGAS aaplconference.com

You’re Invited! AAPL’S

Meet Your Hosts

Our Annual Conference is the Single Largest Private Lending Event of the Year.

The American Association of Private Lenders was established in 2009 at our first event in Caesars Palace Las Vegas, in company of a small caucus of industry leaders with the foresight to know the private lending profession would not flourish without guidance, oversight, and ongoing support.

Thirteen years later, we still meet annually at Caesars Palace, but our gathering has grown to well over 600 strong. Our founding event and culture of collaboration established by those inaugural industry thought leaders is now firmly entrenched, with our Annual Conference the industry standard for must-attend educational sessions and acclaimed networking activities. #AAPLANNUAL is where executives meet to take the pulse of the industry and plan pivotal business dealings.

Beyond the conference, your attendee and sponsorship dollars drive key initiatives year-round. These projects safeguard your business’s future and provide you with tools and resources, as well as support the industry. We love a good win-win, and there is no better opportunity than with AAPL’s Annual Conference.

Sponsors & Exhibitors

84 PRIVATE LENDER
TITLE SPONSORS PLATINUM GOLD SILVER

EXHIBITOR

AERO TECHNOLOGIES, INC.

ANDELSMAN LAW APPRAISAL NATION

BAYPORT FUNDING BRIDGE LOAN NETWORK DUNER AND FOOTE FASTAPP AMC

FCI LENDER SERVICES INC.

FINANCE OF AMERICA COMMERCIAL FLATIRON REALTY CAPITAL FLIPCO FINANCIAL

WOMEN'S LUNCHEON

IGNITE FUNDING INVESTOR LOAN SOURCE IVUEIT

JCAP PRIVATE LENDING KENNEDY FUNDING

LYNK CAPITAL MORTGAGE AUTOMATOR NORTHWEST CONSTRUCTION CONTROL

NUBRIDGE COMMERCIAL LENDING PATCH LENDING

PLANET RENOVATION CAPITAL QUEST TRUST COMPANY REVEDY

ROSS DIVERSIFIED INSURANCE SERVICES

SBS TRUST DEED NETWORK SCOTSMAN GUIDE SITEWIRE SKY EQUITY

SUPERIOR LOAN SERVICING XACTUS

THE MORTGAGE OFFICE

PARTNERS

RENOVO
ARIXA CAPITAL CIVIC CONSTRUCTIVE CAPITAL FASTAPP APPRAISAL MANAGEMENT
ROC CAPITAL STREAMLINE FUNDING
TOORAK CAPITAL
WESTERN ALLIANCE BANK American Association of Private Lenders’ VIP RECEPTION at the 13th Annual Conference 7:00PM WEDNESDAY, OCT. 19 2022 • AAPLCONFERENCE.COM FREE for sponsors & AAPL members • $149 tickets • RSVP REQUIRED Don’t Miss OpeningNight!

Activities

CONFERENCE SESSIONS

With main stage presentations coupled with three congruent sessions tracks totaling more than 15 presentations and panels, attendees can learn from more than 45 top-of-their-field experts. Sessions are video recorded, offering attendees the opportunity to revisit key moments and watch breakouts they couldn’t catch in person.

NEW AND SMALL PRIVATE LENDER ROUNDTABLES

Beyond session topics that range across the entire scope of private lender operations, this year our Bonus Day Two will feature new and small private lender roundtables. Participants will break into groups according to their stage of business to discuss strategies and operational tactics specific to their unique needs, ask questions of relevant subject-matter experts, and create a lasting network of like-minded cohorts.

#AAPLANNUAL is lauded by the industry’s Who’s Who as the single-best event for private lender education and networking.
86 PRIVATE LENDER

AAPL DESIGNATION COURSES

AAPL offers members two certifications: Certified Private Lender Associate (CPLA) and Certified Fund Manager (CFM). This year, we’ve brought back our in-person CFM 201 expansion course, with CFM 101 required as a prerequisite and available online. These carefully curated full-day courses, held Wednesday, Oct. 19, provide a comprehensive overview of their respective subject matters and are taught by industry experts. Members who pass the final exam may use the official AAPL designation and emblem in their marketing.

NETWORKING OPPORTUNITIES

PRE-, DURING, & POSTCONFERENCE

WEDNESDAY, OCTOBER 19

7:00 P.M.

THURSDAY, OCTOBER 20

7:30 A.M.

THURSDAY, OCTOBER 20 5:45 P.M.

THURSDAY, OCTOBER 20

6:00 P.M.

FRIDAY, OCTOBER 21 10 A.M.

A APL ANNUAL CONFERENCE APP // Connect and chat with fellow attendees virtually with the official conference app. Our “shake to connect” feature allows attendees to quickly exchange contact information with anyone, anywhere in the world, who is also actively using the feature.

VIP RECEPTION AT THE OMNIA // Enjoy cocktails and hors d’oeuvres while catching up with VIPs from across the country, all overlooking the gorgeous Las Vegas Strip from the OMNIA’s private deck. This exclusive reception requires an RSVP ahead of the conference.

NETWORKING BREAKFASTS, BREAKS, AND ALL-DAY COFFEE // If the cooler is networking central at the office, food and coffee are the conference watering holes. This year, LendingWise helps ensure you stay fueled with food while The Mortgage Office manages caffeination.

POWER NETWORKING // This fun, fast-paced 30 minutes will put you on a first-name basis (if you can remember them all!) with nearly everyone at the conference. No business cards needed! Come logged in to the AAPL Annual Conference app to use the “shake to connect” feature.

AFTER-HOURS RECEPTION // Continue conversations at this after-hours networking reception where at tendees, sponsors, and speakers can mingle while enjoying complimentary hors d’oeuvres and two drink tokens.

AAPL CHARITY POKER TOURNAMENT // We’re bringing in official tournament organizers, dealers, and tables to run fast-paced Texas Hold’Em play. All net proceeds will go to 501(c)(3) Las Vegas nonprofit Opportunity Village.

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Excellence Awards

As champions for the private lending industry’s reputation and future growth, it’s crucial to recognize those in the industry who look beyond the beyond the bounds of their own business to help our mission.

Our Excellence Awards showcase peer-nominated members who have leveraged their resources to solve problems, kick-start innovation, and improve their communities. Each year, we gather nominations from the community. Member of the Year and Rising Star awardees are decided by popular vote. Beginning this year, Community Impact nominees are evaluated by AAPL. Awardees are announced at the Annual Conference.

Rising Star

DAVID COOK // Dominion Financial Services

Working with David, I get to see the continuous commitment to his company every day. He has successfully doubled revenues year over year while building lasting client relationships and expanding the company's lending product offerings. He shows a passion for the private lending industry as well as a willingness to help others through education and service. He is most definitely a Rising Star!!

JACK HELFRICH // CIVIC Financial Services

Jack’s star has been rising since he launched his career as one of the five original founders of CIVIC eight years ago. Starting as an account executive, through grit and determination, he learned the business and earned the trust and respect of his customers, peers, and industry colleagues. Today as SVP of retail lending, Jack is a key member of the team that has built CIVIC into one of the premier private lenders in the nation. To say that Jack cares about his team, his customers, and the private lending industry is an understatement. Jack is the human equivalent of a golden retriever loyal, kind, and lots of fun, creating a contagiously positive impact wherever he goes—there’s just no stopping this rising star!

—Elizabeth Hillestad, Civic Financial Services

CHRIS RICKER // Spiegel Accountancy Corp

Chris Ricker’s influential efforts to lead and manage changes within the tax industry and our tax department have created a cohesive, streamlined environment for his team members to thrive individually and as a team. His leadership and technical skills recently earned Chris promotion to tax director. This role has presented new opportunities and diverse challenges, which Chris continues to strategically navigate while keeping a focus on the success and satisfaction of our clients and firm.

—Dyan Cole, Spiegel Accountancy Corp

ERICA SIKOSKI // Bridge Loan Network

Erica Sikoski excels in her role as marketing manager for Bridge Loan Network and continues to lead the company's marketing initiatives to grow BLN's brand and brand awareness. She has undertaken a company rebrand and website redesign to properly position the company in the industry. Her efforts have allowed BLN to grow as a private lending technology company. Especially as a young female, her accomplishments during her time in the industry are truly impressive.

Rising Stars are members who have accomplished outstanding growth in their companies during the past year.
88 PRIVATE LENDER

Member of the Year

This award goes to an AAPL member for their deep expertise, unique value, and strong commitment to clients and growing the industry.

CARRIE COOK // Ignite Funding

For the past 15 years as president,Carrie Cook has led Ignite Funding to be one of the most reliable private lenders in the Western U.S. and an investment sponsor private investors can depend on for portfolio diversification, growth, and mitigated risk. Ignite Funding embodies her philosophy that everything should be handled in-house. This is how Ignite Funding has never missed a funding deadline, providing borrowers with the timely financing they need to be successful in a competitive industry. It’s also the reason why Ignite Funding services each loan from cradle to grave, so investors know they are working with an organization that stands behind their investment, not for the fees Ignite Funding earns, but for the integrity they gain from investors.

—Stephanie Fryar, Ignite Funding

HUY DO // PrideCo

Huy has provided new and seasoned lenders advice that you can’t get anywhere else. He has insight as an investor, a lender, and a finance professional. That combination is hard to come by. And he loves cigars and whiskey!

—Kevin Kim, Geraci LLP

BETH JOHNSON // Flynn Family Lending

Beth has built her private lending business from the ground up since 2014. She measures her success in the people she helps, the investors she lends to, and her capital partners that stick with her year after year. She is committed to education in the private lending space and is a voice for small private lenders just getting started. Her ability to nurture those lenders helps our industry grow. She is on the ground floor of private lending, showing people how to do the things she had to figure out on her own all those years ago. She’s always happy to lend a hand and share her knowledge and does it with a smile. She also educates borrowers about what private money can do for them. Her book about private lending was published by BiggerPockets in July 2022. She helps run a large education-focused community on Facebook for private lenders and is active in the Education Committee for AAPL.

—Alex Breshears, Lend2Live

SUSAN NAFTULIN // Rehab Financial Group

Susan Naftulin is co-founder and president of RFG. Her success and dedication to building a woman-led company with a very different product in the private lending space is nothing short of bravery. She is an AAPL advocate and committed to sharing her experience and skills with all.

—John Santilli, Rehab Financial Group

CARLOS NODARSE // Applied Business Software

Carlos is a wealth of knowledge. He has been in the lending industry for over 35 years and shares his knowledge with anyone who needs it. Carlos has written most of The Mortgage Office software, the most trusted lending software in the industry, and always takes customers’ needs into consideration to develop the software that has helped so many lenders grow and scale their business. He is a loved leader by his team members.

—Elizabeth Morales, The Mortgage Office

MICHAEL RAMIN // Sharestates

Michael has been with Sharestates since the company closed its first loan in 2014. Following a meteoric rise in loan originations until 2020, Sharestates restructured the sales team at the end of 2021 to support a national expansion plan. The company has relied on existing relationships forged early in Michael's career at Sharestates to support its growth goals this year, with over 50% of Sharestates' loan originations personally closed by Michael year-to-date. Michael's efforts are not single handed; they are supported by a team. Nonetheless, without his tireless efforts and commitment to Sharestates, the company would not be able to achieve its goals and elevate the private lending industry as a whole.

—Justin Peterson, ShareStates

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Excellence Awards

Community Impact

ALEXANDRIA BRESHEARS // Lend2Live

During the pandemic, Alex started a Facebook group for private lenders, now numbering 7,000+ members. She has done this through her leadership while providing education via live trainings with industry experts covering legal, software, social media, and operations. The sense of community she has created allows for an exchange of best practices that focuses on inclusiveness, regardless of experience level. The mix of knowledge levels prompts an ongoing inspiring environment.

Alex is now a published author on the topic of private lending. “Lend to Live” and its CPR lending system teaches the reader how to manage each step of the loan cycle from beginning to end.

Alex’s leadership and ability to create community in a fragmented industry has brought more people into the industry and taught them to lend the right way. At the same time, she’s helping experienced lenders gain a new perspective about operations, marketing, and legal topics.

Mike Seidl, Cedar Oak REI

CORT CHALFANT // Nexus Private Capital

Cort has taken the AAPL Government Relations Committee to the next level. His commitment and service to the entire association creates a meaningful and lasting impact for all of us. From direct advocacy, to volunteering his time and talent, Cort understands what it means to leave the world a little better than we found it.

STEVE KUPTZ // Trinity Mortgage Fund

Steve, in his own quiet way, has been helping bring a lot of different AAPL initiatives to fruition, such as providing education and thought leadership to our membership community. He writes for the magazine, plans and records instruction for the original Certified Private Lender Associate and upcoming CPLA Commercial course he’s just all-around supportive. In an industry where no one ever has enough time, Steve has given so much of his to mentor others.

—Jeffrey Levin, Specialty Lending Group

JEFFREY TESCH // RCN Capital

The entire RCN Capital Team, led by Jeffrey Tesch, takes pride in giving back to their local communities. RCN Capital has provided tremendous support to their local Children's Hospital by sponsoring the hospital's Superhero Day with CT Children’s and supporting their Amazon wish-list by hosting companywide toy drives. It is inspiring to watch their company give back to their communities, both in Connecticut and in their satellite office communities through food drives, back-to-school supply collections, and more.

—Erica Sikoski, Bridge Loan Network

This award honors dedicated and innovative professionals and their commitment to bettering their local and/or private lending communities through volunteering, community development programs, or civic/legislative efforts.
90 PRIVATE LENDER
FALL 2022 91

Bet Small, Win Big

and insightful information from outside sources is one of them.

Fortunately, there’s an industry conference that “gets” small lenders. The upcoming American Association of Private Lenders’ annual conference will offer hot topics with takeaways for even the smallest lenders.

When new or small private lenders attend one of our industry events, we expect the event to check the right boxes and be a personal and professional success. We look for great food, plentiful networking, an engaging venue, and generous opportu nities to learn and improve our craft. For small businesses, time is short and large company expense accounts don’t exist. So, a productive conference experience is critical to whether we return the next year. Unfortunately, for many of us, our expecta tions never quite meet reality. Based on my experience attending conferences and talking with other small lenders, our take-ways include event vendors who aren’t really interested in our businesses because of our small reve nue size. In addition, panel discussions and speaker presentations that contemplate various Wall Street funding strategies are interest ing but elusive for smaller private lenders.

WELCOMING OUR VOICE

It’s understandable and certainly justifiable that the private lending industry and their events have typically targeted the medium

and large lenders, because they dominate the space and are often at the forefront of change. But clearly as our industry evolves, there is a need for another voice at the table, beyond the high rollers and the big whales.

That voice is the small lender, often classified as an owner with a loan portfolio below $25 million.

Many of these owners took a nontradi tional path into the business and didn’t come from Wall Street, big banks, or the legal profession. Instead, they started their careers in the mortgage industry, commercial banking, commercial finance, loan brokering, or construction. I began my own journey into private lending as a part-time lender for 15 years while I worked in the factoring business. I transitioned to lending full-time three years ago by starting my own business.

A CONFERENCE THAT “GETS” SMALL LENDERS

There is no shortage of unique challenges for the small lender. Finding valuable education resources

Panelists will be delivering nuggets of insight that will apply to lenders at different stages or sizes of business in order to be inclusive of everyone in the audience. Although 100% of the subject matter in each panel won’t be 100% applicable to everyone, most lenders should be able to walk away having learned enough of value to make attendance worthwhile.

SNEAK PREVIEW OF TOPICS

Here are some of the sessions you can expect on the topics important to small lenders.

Funding and capitalization. One import ant session, called “Find the Best Liquidity Strategy for Your Lending Business Goals,” will offer a candid discussion on the many capital sourcing, funding, equity, and liquidity strategies, including when and how they are best executed among different lender sizes and economic climates.

Many small lenders started their business with personal capital, possibly adding friends and family money along the way. Returns have been good, but limited funds make growth challenging. Knowing what other options we have for future funding can mean the difference between expansion or stagnation.

Structuring, underwriting, and closing loans. The AAPL conference will offer several sessions on this topic, including:

The 2022 AAPL conference in Las Vegas has plenty to offer the small private lender.
92 PRIVATE LENDER OPINION

Origination Processes and Procedures for Today’s Private Lender

loan monitoring, depending on portfolio size, also may require some industry-specific software to maintain adequate efficiency.

New Trends Among Popular Asset Classes

There are many aspects to structuring a loan, with the borrower or broker conver sation always getting to price. Competition for business is fierce and although price has importance in the transaction, small lenders will tell you that a good borrower often values other parts of the loan struc ture more importantly. Relationship, speed to close, execution, and lender competency will move to the forefront in the small lender transactions. To the borrower, hav ing a lender that can move fast, knows how to close a deal, and brings competence and knowledge to the loan process as a funding partner is invaluable and worth much more than saving a couple points.

Every lender underwrites a little differently and best practices ultimately come with experience. The loan approval box evolves over time but what doesn’t change is the importance of the real estate collateral.

The list of topics small lenders can benefit from when structuring, underwriting, and closing loans is long. The three sessions the AAPL conference offers should provide some valuable takeaways.

Loan servicing and risk management.

Using a third-party loan servicer instead of managing client payments, filings, and payoffs in-house can offer advantages in time and expense while bringing an extra level of over sight. Losing some control over account man agement is the trade-off. There are various loan servicers of different sizes and locations a private lender can choose from. In-house

Other risk management topics to con sider include property insurance, taxes, and non-payment of interest/foreclosure strategies. Don’t always count on insurance companies to notify the lender of client payment defaults and policy expirations.

Internal safeguards should be put in place to manage this risk. Monitoring borrower property tax payments can be critical if you don’t escrow. Tax liens, should they arise, have different implications depending on the location of your collateral. Finally, if you need to foreclose, find an experienced attorney that specializes in this area to guide you through the process and pitfalls.

The AAPL conference offers two sessions on these important topics:

Best Practices for Managing & Servicing Your Loan Portfolio

Everything Default, Loss Mitigation, & REO Troubleshooting

A CALL TO ACTION

As our industry continues to evolve, so too should the representation of lenders that have a voice in its future. The American Association of Private Lenders listened and has chosen to give the small private lender, of which there are many throughout the country, a collective seat at the big table.

No matter what size your business, we should all be pleased the foundation is being built to recognize the importance of all lenders and the development of content for small lenders is now emerging. While still on the ground floor of these changes, there should

be legitimate excitement that a big bet has been placed on this community. Inclusivity, additional diversity, and collective insights will only further all our goals and make the private lending industry stronger.

Expect a full house at the annual AAPL conference this year. It’s going to be all aces.

See you in Vegas! ∞

ABOUT THE AUTHOR

David Cook began his business career as a bank lender before transitioning into the commercial finance industry, He worked for a boutique merchant bank and as one of the principals in the firm, Cook participated in the management buy-out of the business and the ultimate sale of the company to a regional bank in 2002.

He spent the next 17 years in business development and management roles with various banks and was involved in the commercial finance business before becoming a full-time entrepreneur in 2019 as the president and sole owner of Contessa Capital LLC.

Contessa operates as a direct private lender in the real estate space, with a focus on fix-and-flips, bridge lending, and ground-up construction. The company also is actively pursuing select opportunities to be a real estate investor or factoring participant.

Reverse Engineer Your Workflows for Better Lending Operations
DAVID COOK
FALL 2022 93
We now offer our signature Certified Private Lender Associate and Certified Fund Manager courses online, so you can earn your AAPL-backed certified status from the comfort of anywhere — and promote it everywhere. CPLA Modules • Intro to Business-Purpose Lending • Legal Documentation • Underwriting • Loan Servicing • Workouts CFM Modules • Intro to Securities • Pros, Cons, & Considerations • Structure • Creation & Launch • Administration AAPL Certifications are members-only. Enroll online at aaplonline.com/courses for $349.

VENDOR GUIDE

If you’re looking for a service provider who has real experience working with private lenders, the Private Lender Vendor Guide is your starting point.

WINTER SPRING

Accounting Business Consultants

Default & Loss Mitigation

Legal Services

Warehouse Lenders

Appraisers & Valuations

Capital Providers

Data & Metrics

Environmental Services

Lead Generation Note Buying/Selling

Each issue, we publish a cross section of specialties. These providers do not pay for inclusion. Instead, we vet them by reviewing their product offerings and talking to private lender references.

AAPL members can access all service providers online at aaplonline.com/vendors. If you’re not a member, keep an eye on this publication for future updates. Then consider joining AAPL to support this and other initiatives!

SUMMER

Funds Control

Investor Reporting

Loan Origination Services

Loan Servicing

FALL THIS ISSUE!

Development Cost Estimates Education Fund Administration Insurance Marketing

Want in? Nominate yourself or a company you’ve worked with at aaplonline.com/vendor-guide-nominations.

Indicates AAPL Membership

DEVELOPMENT COST ESTIMATES

DEVELOPMENT COST ESTIMATES (CONT.)

Partner Engineering and Science, Inc

Secondary Specialties: Funds Control,

Default & Loss Mitigation

Granite Risk Management

Secondary Specialties: Funds Control, Fund Administration

Website: www.GraniteRiskManagement.com

Products & Services: National end-to-end full residential and commercial construction management. Streamlined one-to-one process. Draw management, project feasibility studies, contractor reviews, discounted title and escrow services.

Website: www.partneresi.com

Phone: (800) 419-4923

EDUCATION

American Association of Private Lenders

Website: https://aaplonline.com/

Phone: (913) 888-1250

Products & Services: Annual conference, quarterly Private Lender magazine, online

EDUCATION (CONT.)

and classroom-style certified private lender associate and certified fund manager courses, webinars, compliance and legal resources, downloadable guides and templates, and more.

Geraci Conferences

Website: www.geracicon.com

Phone: (949) 379-2600

Products & Services: Networking, raising capital, deal flow, education for private lenders, lead generation

96 PRIVATE LENDER
VENDOR GUIDE

EDUCATION (CONT.)

LendIt Fintech Digital

Secondary Specialties: Funds Control, Default & Loss Mitigation

Website: digital.lendit.com

Phone: (646) 971-1645

FUND ADMINISTRATION

High Divide Management

Secondary Specialty: Accounting Website: www.highdividemgmt.com

Phone: (816) 807-4039

Products & Services: Maintain general ledger (i.e., bookkeeper); prepare financial statements and footnotes; support audit process; calculate partner allocations and waterfalls; manage LP reporting

INSURANCE (CONT.)

Apex Closing Services, LLC

Website: ApexClose.com Phone: (915) 525-6699

Products & Services: Title and settlements services, refinance, bridge, rehab, portfolio, dscr, international, eClose and remote online notary (where acceptable), closings in multiple languages

BSP Insurance Website: www.bspinsurance.com

Phone: (203) 237-7923

Realprotect Website: www.realprotect.com

Phone: (800) 579-0652

MARKETING

Liberty Title & Escrow

Secondary Specialty: Legal Services Website: www.libtitle.com Phone: (401) 529-4773

Products & Services: Title service in all 50 States, closings and fundings

Geraci Media Website: www.geracimediagroup.com

Phone: (949) 379-2600

Products & Services: Deck, website development, logo design, content creation, email management, SEO, social media marketing, company brochure, branded PowerPoint presentation, event planning, video marketing

Socium Fund Services

Website: www.sociumllc.com Phone: (973) 241-3300

Products & Services: Fund launch consulting; portfolio system access 24/7/365; comprehensive portfolio reporting and UDFs; fund accounting and administration; fee calculations; investor services; electronic subscription processing; tax and compliance; OID & PIK calculations

INSURANCE

National Real Estate Insurance Group

Website: nreig.com

Phone: (888) 741-8454

Products & Services: Residential insurance for owner-occupied, non-owner occupied, renovation and vacant property; commercial insurance

Go Media Website: www.trygomedia.com

Phone: (470) 878-2000

Products & Services: Marketing, campaigns and sales funnels, web design and development, graphic design, video production. special packages available for AAPL members.

KallistoArt

Website: www.kallistoart.com

Ross Diversified Insurance Services, Inc .

Website: http://rossdiv.com Phone: (800) 210-7677

Anderson Agency

Website: www.andersonagency.group

Phone: (812) 887-0443

Products & Services: Property, flood, REO, and lender-placed insurance

Products & Services: Nationwide property insurance: lender-placed insurance for commercial and residential, REO insurance for commercial and residential, insurance monitoring, investment insurance for 1-4 units, including rentals and rehabs

Phone: (813) 563-5321

KC & CO Communications

Website: KCCOPR.com

Phone: (202) 630-3215

INSURANCE (CONT.)
FALL 2022 97 Indicates AAPL Membership

DRIVEN BY “UNDERDOG” MOTIVATION

There are two things I have come to believe from all my experiences:

1. Being the underdog makes you work harder.

2. You always end up where you are supposed to be.

I have always felt like the underdog, the one others thought had great potential but who was never going to be the “best.” In my formative years, I attended Stuyvesant High School with 700 of the brightest NYC students. I realized quickly I was never going to be No. 1 (or even in the top 10%).

I wanted to be a doctor, so I took every single bio-anatomy course. But when you graduate from a specialized school, compe tition is fierce; the “average” students often don’t get into their dream colleges and are forced to pivot. However, trying to prove I was worthy and distinguishing myself in other ways got me invited to the interna tional leadership program run by the Louis Jonas August Foundation one summer and a job at the U.N. in Switzerland the next. Those experiences eventually afforded me the privilege of receiving the JPMorgan Chase Smart Start Scholarship, a full ride and paid internship through college.

At home, my immigrant parents, who had worked hard to own small businesses, were

exploring real estate by purchasing the properties where their businesses were located. They encouraged me to take the JPMorgan Chase opportunity for all the “real world” experience it would provide.

Afterward, I went to New York Law School. At that time, being a South Asian female in law school automat ically made me an outlier, and my desire to prove I could do as well as my peers was a strong driving factor.

My side hustle—being a South Asian tele vision show host and radio jockey—helped me develop other aspects of my person ality. I began to see that my greatest asset was my ability to synthesize my experiences to help me grow as a per son and in my career. What I learned at home about real estate coupled with my legal education and my desire to prove I was capable helped me land at Akerman, where I broadened my real estate, finance, and legal skills.

Eventually, I married and moved to Bah rain and London, where I went in-house at a Shariah-compliant investment firm. Once again, I felt like the underdog: a woman in a culture, country, and industry that was still male-led and quite conserva tive. A few months later, the firm filed for bankruptcy protection in New York courts,

and as a New York attorney, I had an opportunity to make a significant impact and drive the restructuring process. I was able to shift preconceived notions among those who had a harder time accepting a female in my role. Ultimately, the execu tive team grew to champion women like me who could lead change in the region.

During the pandemic, I changed and grew so much, but I still had the desire to prove myself and add value wherever I would go next. That next place was real estate.

I am not sure if Sharestates found me or I found it, but I do know it felt a little bit like me—an underdog: a private lender and a proprietary fin tech platform with immense promise.

But, the team at Sharestates, like me, has real industry experience, integrity, and a strong desire to win. As the under dog, I have always believed I can shift preconceived notions and create value. Sharestates is the same, changing the perception about private lenders and creating value in unconventional ways. That all goes to say, my high school career plans may not have worked out, but I ended up right where I belong, working with a diligent and creative team that is shaping the intersection of fintech, frac tional investing, and private lending. ∞

98 PRIVATE LENDER LAST CALL  WITH AMY DOSHI
The Ultimate Lending Software (800) 833-3343 www.TheMortgageOffice.com Applied Business Software, Inc. 2847 Gundry Avenue, Signal Hill, CA 90755 sales@absnetwork.com Top-rated by thousands of users Global leader in lending software 2017
Save the Date! AAPL’S 14TH ANNUAL CONFERENCE The Nation’s Largest Private Lender Event NOV. 12-14 2023 LAS VEGAS aaplconference.com
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