Clueless

On any given day I talk to several people who are either gathering information regarding hardmoney loans or trying to grasp the concept of said type of loans. While it is sometimes difficult to explain the simple process to some people the message usually gets through- that or they pretend to understand how it works ‘cause their two functioning brain cells give up on them after they hear the words interest, terms, points and such.

Maybe you’re doing a bad job explaining you say? Hardly. The concept is extremely simple. You want to invest by purchasing a dilapidated structure, usually a single-family residence. You want to fix it up to make a profit off of your investment either by selling after repairs are complete, for much more than you bought it and spent on it, or by becoming a landlord making a profit of the leasing and selling later at a profit. Bottom line you want to make money. Problem is a conventional lending institution will not lend you money on an uninhabitable structure so you have to look for funds elsewhere.

The options are limited- your rich uncle who will trust you with unlimited sources of cash, private lenders who will promise to loan you enough for the purchase and the repairs and may or may not have all the funds available, or a banking institution that does partake in the hardmoney deals. Hardmoney simply means that the lender is charging much more than the conventional guys because they are assuming a much higher risk when lending on a house that needs repairs, that and the process is not quite as involved in acquiring these type of loans- there’s no extensive underwriting process which also equals higher risk.

That’s all fine that people don’t grasp the concept quickly, I’m willing to repeat it several times. Really, I like to hear myself talk. What kills me though is the existing borrowers. They call with the stupidest questions all the time. How is it possible that you have been in this business for a while and yet have no clue as to what you signed when you closed your last loan let alone what the documents really mean or said? Don’t answer that. I specially like the calls from the guys that insist that we owe them money after they pay off their loans.

“Yeah, I’m (so ‘n so) and I just closed on a loan on (such ‘n such street) and I wanted to know why my payoff was so high?”

“Hold on Mr. (So n’ so) let me look at your account. Ok, your initial loan was for $n, there’s interest for the current month accruing up until today when you paid-off of $n and you were late 5x so there’s a late fee of $n. There’s also a payoff fee of $n, that comes to your payoff amount of $N.”

“I was late? When was I late?”

“You were late on month x,, y, and z.”

“I thought there was a grace period.”

“There is, but your payments were received on x, y and z dates, past the grace period each month.”

“Ok, but how come I’m paying for an extra month?”

“Extra month sir? Which extra month?”

“Well if I bought the house on January 10th and it’s only June the 2nd and I paid my May payment why am I still paying a full payment when it’s only the 2nd June?”

“Your May payment was actually for April. Your interest accrues in arrears.”

“What?”

“Well, when you closed on January 10th you prepaid your interest until the end of that month. Then if you remember, you got to skip one month- February, and when you made your first payment in March that payment was applied to February. You pay in arrears, for interest accrued the previous month.”

“I still think you’re overcharging me, there should be a refund or something.”

“I can send you a breakdown with all the dates, checks received and all that so you can see it all together if you’d like.”

“Yeah, send me that. My girlfriend is a real estate agent, she said something wasn’t right with it. I’ll call you back.”

“Where would you like me to fax you this breakdown?”

“I’m gonna come up there and get it, I’m gonna let my girl friend look at it, she’s a real estate agent.”

“Ok, I’ll leave a package with your name on it at the front desk, if you need to speak with me have the receptionist find me.”

So then I go thru the trouble of getting a printed version of the account from operations- all broken down in an excel format anyone’s dumb, inbred puppy can understand and the fool who’s so sure of his accounting skills doesn’t show up with his real estate girlfriend.

And real estate agents in this particular business? Don’t even get me started with those dimwits. I guess it is true what I heard about them, 10% of the real estate agents handle 90% percent of the closings, while 90% of the real estate agents handle the remaining 10% of closings- fools, how do they eat?