Friday, June 10, 2011

HML #18 Started Two Weeks Ago

Started another hard money loan. Actually, this one started about 2 weeks ago, but seems to have gotten lost in the shuffle. My partner had an influx of about 6 loans to fund and he mislabelled some emails so it was pretty confusing with all the properties flying around.

Anyway, this property is San Leandro and is a 900 square foot, 3 bedroom, 1 bath single family home. It was built in 1942. It was purchased at auction for $195,000. Our loan is for $144,000, giving a LTV of 74%, based on purchase price. The estimated market value after repairs looks to be $250,000. (Comps sold in January and February for $260,000 and $250,000.) The LTV at that price is 58%. The pros of the property: It's on a huge lot. Fix up costs will likely be low, simply based on the size of the house, but the condition of the inside is unknown. The cons are it backs up to a strip mall and the condition of the inside is unknown.


I should also note here there is one more potentially huge con: the borrower is under investigation by the FBI for bid rigging at foreclosure auctions. (I obviously disagree with the comments in the article about how the margins are thin in this business. I've made lots of loans here and I know that is not the case. Just look at this property for example.)  This is interesting. The borrower is one of the biggest buyers of properties in the county and is our biggest borrower. My partner has a very high opinion of him. He always makes his payments early (for example, he just made a payment this week, even though his due date is the 29th of the month). My partner estimates the borrower employs about 10 or more people and runs a professional business. He typically buys 1 property a day and closes on 1 per day. He recently took out three loans with us. My partner doesn't know what the FBI will find or if he will do jail time, but he does figure the guy will probably at least face a big fine.

But based on the numbers, I went ahead and got in on the loan. If we have to foreclose on the property, we're still in good shape. I image the legal proceedings of a foreclosure when the borrower is in jail would be somewhat horrendous, but not insurmountable. And we'd have almost $100,000 cushion to work with.

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