Fairfield Financial Services, Inc. - Private Money Loans, Lending & Borrowing

Trust deed lending – ten mistakes you should never make and ten mistakes you must never make

I first published this post on The Private Money Investor Blog on Dec 19, 2009. It is clearly directed toward a private money investor audience. However, from time to time, I like to post articles on this blog which give more of that particular perspective. If you really wish to understand the private money lending business, you must view it from all possible angles.

Clay Sparkman
Okay, first the ten mistakes you should never make:
(1) Never close a loan without title insurance.
(2) Never close a loan on property that has valuable structures without a valid hazard insurance policy in effect listing you or your entity as loss payee.
(3) Never close a loan leaving property taxes unpaid (unless you are fully aware of the amount of unpaid property taxes and have knowingly agreed to allow some amount to remain unpaid for a certain specified period of time).
(4) Never lend on land which may have wetland issues without seeing a wetland study or speaking with a relevant government official, and understanding the potential impact of possible mitigation requirements.
(5) Never lend on property for which labor and/or materials have been provided within 90 days prior to closing without either (a) having an extended ALTA policy of title insurance with no exception for labor and materials liens (difficult to get), or (b) having received a signed affidavit from the borrower which lists all providers used (along with contact info and the amount of any outstanding debt), and contacting all labor and materials providers on the list to make sure that none is preparing to file labor or materials liens.
(6) Never close a loan secured by property which appears to show (by inspection, general observation, public record, or known history) a reasonable possibility of being contaminated by any form of hazardous waste, unless you have seen a current level I or level II environmental study showing the property to be clean. And in any event, always require borrowers to sign a hazardous waste indemnity agreement.
(7) On a construction, rehab, or development loan: never disburse funds for work that has not been completed (unless as a deposit to a company that has been carefully checked out and is considered to be highly credible) and never disburse funds directly to the borrower unless as reimbursement for work that has already been completed and paid for, and which is documented accordingly.
(8) On a construction, rehab, or development loan: whenever advancing funds to a labor, service, or material provider, never advance such sums without first requiring the provider or entity to sign a form acknowledging that the money is an advance and that the advance was provided by the lender or otherwise a third party, and that any refund must go back to the lender or third party and never back to the borrower directly.
(9) Never close a loan without reviewing every single exception allowed on title in positions superior to your own.
(10) Never close a raw land loan without first understanding precisely what is allowed by the applicable zoning and without speaking to appropriate government authorities to be sure that there are no known problems which may obstruct or deter any reasonable plans to develop the property.
Okay, now for the ten things that you really absolutely must never ever do:
(1) You must never close a loan at a title company known as Joe’s First National Title located in a former burrito cart at the corner of 3rd and Main in Springfield.
(2) You must never lend money on a property if you happen to catch your loan broker or borrower walking the property with a Geiger counter.
(3) You must never lend money on a property in a country (or region) presided over by anyone named Hugo Chavez, Fidel (or Ramón) Castro, Kim Jong-Il, Jim Jones, Iddi Amin, Papa Doc, Baby Doc, or well … any Doc for that matter.
(4) You must never make a loan secured by documents which are written in iambic pentameter verse. Just back out the door, turn, and run as fast as you can.
(5) You must never lend money to a non-human primate—except possibly a rhesus monkey (and then only if the monkey is a natural born US citizen).
(6) You must never lend money on a property if when you ask about inspecting the property, the broker intones, “You can’t get there from here.”
(7) You must never lend money on a property if the appraisal states that the property’s highest and best use is “ancient burial ground.”
(8) Four words: tar pit never ever!
(9) You must never make a loan where your trust deed will be in the thirty-seventh position. Ah, ah, ah … don’t even think about it. (I don’t care how good the CLTV is.)
(10) You must never lend on property which straddles the international dateline. It is quite simply too confusing.
Okay, so hopefully it was clear to many of you that the first set of items was meant to be serious and that the second set was intended to make you laugh. If not, don’t worry about it. These are really all things that you shouldn’t do—funny or not.
— Clay (clay@privatemoneysource.com, 503-476-2909)
Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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