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Unformatted text preview: the taxes and insurance during this time period as well as the interest lost on the money the lender has invested. The interest will compound without the payments being made and with additional cash expenditures. Therefore, the actual lender investment has risen significantly. Of course, there is always the risk that values will decline and/or the loan appraisal was not realistic. This could result in the lender taking at significant loss as to sale price versus loan balance in addition to the other costs listed above. The 70% ratio is close to a break–even ratio based upon a sale at appraisal value. If greater security is desired by a lender, the loan can either be reduced or additional assets can be added to the security. (Note that 125% loans violate the 70% rule). ABILITY TO SERVICE DEBT
If a hard money equity lender lacks the financial ability to make the payments (service the senior loans) and maintain the property upon which the borrowers default, then that lender should not have been a lender. Investors must consider the “What Its” of an investment. Investors are taking a huge risk if default would leave them owning on a property having loan obligations beyond their payment ability. LOAN FILE RECORDKEEPING
At a very minimum, a hard money arranger should cover the following in his or her loan file. 6-8 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 6: HARD MONEY LOAN & CONVENTIONAL LOANS
Loan Application – The application should include credit information. While these are not federally related loans, the Uniform Residential Loan Application is an excellent form to use. Credit Report – A copy of the credit report should be maintained in the file as well as a signed receipt from the lender that they received the credit information prior to funding the loan. Verification of Mortgages – Verification should be obtained as to balances on all senior encumbrances as well as on the status of senior loans. Preliminary Title Report – A Preliminary Title Report should be obtained and a copy retained in the loan file. A receipt from the lender showing receipt of the information should also be in the file. Appraisal – The file should include an appraisal by a licensed or...
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- Spring '10