Recently it was brought to my attention that an investor has to be as careful about who they borrow from as they do about who they lend to. In my mind, it was a matter of supreme indifference who lent me money as long as it was cheap and plentiful…WRONG.
Had a friend of a friend get in a huge bind because their HML filed bankruptcy. This action immediately froze the asset ( a MHP) until the BK was discharged which can take 6 months or more. He had borrowed $160K at 9.5% ammoed for 20 balloon in 5. He borrowed these funds in 2005 and a balloon comes due in September next year. His exit strat was to live on the spread for 5 years, spruce the property upand sell with a nice profit. He had a buyer come in April 11 and offer a full price offer on the Park…the kicker was the thing had to close in ahurry cuz of 1033 requirements. The Note holder filed BK first week in May and the Park owner was notified that his Note was included in asset side of BK. I had an interest in the deal because the new Owner wanted to fill the Park with 14 units from our retail lot. The Park is co’d for 80 units and has been a true cash cow. I went to attorney with the new Owner and found out some really scary things…here are a few scenarios that can impact a borrowers life:
Bankruptcy
Divorce
Criminal Seizure
Imminent Domain
Any of these can hurt a Borrower badly. In my customer’s case he will simply miss out on a 1033 Exchange but how many borrowers really think of these things happening? With this new economy filings are way up more risk attaches to loans secured with real property.
Any ideas on how to protect the Borrower? The asset?
This is the second time a borrowers has gotten jammed up through no fault of their own…Who has borrowed HM with very little info on the Lender? I know I have…Points, term, rate are my comparison numbers and I think I will add credit score!
Regards
Greg