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Tough spot for some lenders
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LAS VEGAS REVIEW-JOURNAL
Updated: Apr. 10, 2012 | 10:53 a.m.
Nevada's hard-money lenders, who use investor money to make development loans secured by real estate, now face a dilemma.
The vast majority of hard-money loans have been foreclosed on in the wake of the collapse of the real estate bubble.
But at the same time, the hard-money lenders don't want to abandon investors who now hold interests in foreclosed properties, said Corrine Cordon, president of Capella Commercial Mortgage and president of the Private Lenders Group.
Many hard-money lenders would now like to manage those properties. The problem is: Most hard-money lenders don't have a real estate license required for managing properties.
Mortgage Lending Division Commissioner Joseph Waltuch discussed the issue Friday with 30 hard-money lenders at the Bradley Building, 2501 E. Sahara Ave. Another dozen participated by teleconference from Carson City.
The commissioner regulates mortgage brokers, including those who solicit investor money to make hard-money loans backed by real estate. The loans typically had double-digit interest rates that attracted many investors looking for higher interest than they could earn on bank accounts and certificates of deposit.
Real estate values collapsed over the last couple of years in the wake of massive residential mortgage defaults. More than $1 billion in hard-money loans are now delinquent or foreclosed. Few borrowers are current on hard-money loans.
Some investors in hard-money loans have traded their stakes in foreclosed real estate for interests in business trusts established by hard-money loan brokers. Others object to the business trusts and complain they have no way of finding other investors who share ownership with them in foreclosed properties.
While the names of investors are public record, Waltuch said giving out contact information could be a violation of privacy laws. He suggested giving investors in hard-money loans an opportunity to waive their privacy rights so that other investors could contact them.
Waltuch said he also could adopt a regulation, directing lenders who manage foreclosed real estate to obtain property management licenses from the Real Estate Division.
However, Waltuch fears that it will take longer than a year to get new regulations adopted, approved by the Legislative Counsel Bureau and certified by the secretary of state. In a year, the state Legislature will be convening for its next regular session.
David Goldwater, president of Goldwater Capital and an influential former Democratic assemblyman, said many hard-money lending rules should be handled through legislation rather than regulations.
"We could be here for months debating these issues," Goldwater said.
Cordon urged the division to start writing new regulations.
Waltuch said the division could write proposed regulations that could serve as guidelines for hard-money lenders while waiting for approval of the rules or new legislation.
"The Legislature has directed us to act (on regulations), and we will act, and we can do most of this, if not all of it, by regulation," Waltuch said.
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To Just Tired...
LLC's insulate you from personal liability related to the property. They are a good thing, not a bad thing. Why do believe that hard money lenders should offer to manage REO's for free? Do you have any idea how much work, money and man-hours it takes to manage a portfolio of REO's? It literally takes a full time staff. You are far better off paying a professional group to manage it for a small fee than trying to do it yourself. A professional staff will get more of your back money back for you than you and 20 other small investors running around like chickens trying to manage your own property. Do you know how to pursue personal guarantees of the original borrower? Or to manage capital call short falls for critical expenses? Or to search out and negotiate with developers that may want to develop your property? Or when to sell and when to hold? I assure you that there is a lot you do not know about this subject.
Most investors are disgusted with the Hard Money Lenders that recklessly endangered their livelihood by continuing to encourage ever increasing loan amounts on undeveloped properties even, in my opinion, when the "insiders" knew they were beginning to have a problem.
The hastily passed AB 513, section 8, which deals with defaulted deeds of trust was written in such a simplistic form that people don't like to "read the words" of it when trying to determine what it means. Remember that "the words speak for themselves."
From my perspective, AB 513 allows for 51% of the beneficial interests to make decisions for 100% of the owners in most cases of making decisions regarding either the current defaulted deeds of trust, or even after foreclosure regarding property ownership and operating decisions.
Unfortunately, too many people will never agree with the majority and withhold their support for the majority vote and either not participate at all or purposely hinder movement going forward without some "additional" consideration for their vote....hmmmmmm.....sounds like Congress!!
This problem of non-cooperation and mistrust is ever present throughout society, and will hinder the ability to manage these deeds and/or properties on a go-forward basis.
The Hard Money lenders want to manage to keep their doors open, by extracting more fees from those that have lost all current cash flow from their investments, in addition to the hundreds of millions of dollars of equity investment that is worth, perhaps, 15-30 cents on the invested dollar...of course without 51% agreeing to sell at a low level, this equity is illiquid.
The investors in these deals would be naive to think that the hard money lenders have the investors best interests in mind....they only have their own interests in mind, otherwise they would offer to manage for free!!
I challenge them to offer just that!!
Hard money investors lost their investments and homeowners lost their equity, so where did the money go? Maybe the owners and executives of these companies? The money went to someone. Now, who exactly was regulating this business? Under what lending guidelines and federal regulations did these businesses operate? They have a nearly 100% default rate and people are blaming banks for making bad loans? Gee I wonder how many loans coming from these outfits were no doc loans? These defaulting loans were made to buyers who never should have gotten loans, they pushed up demand and caused all our prices to go up. Now they default and we all lose big time, who can I talk to about that?