Originally Posted by calmloki
only the one Principal is still in contact and trying to keep the business name alive. It could be argued that the corporation is solely responsible for the debt and that the principals did not take personal responsibility for the debt - that argument could be costly in court. A legal victory if there are no assets to attach would be phyrric..
once you start lending, brokers and lawyers and clients will start pitching you tempting deals, like, "lend me 100k for 2 weeks and win 10k bonus". There are some bridge loans out there where this can make sense.
until you get a deal that goes sour, you start to feel increasingly invincible. Happened to Donald T.
If you made an investment (loan) to a company that was not personally secured or secured against assets...well, that is something I have done and learned to regret...part of the tuition of education.
also, the pressure will be there to do quick deals with skimpy paperwork. On my deal gone bad, turns out my broker had put it through for cash with no paperwork, so I could not even sue her firm for negligence (the appraisal which usually is done without me checking was not done...as this was supposed to be a 2 week turnaround). My only recourse was petitioning for the liscenses for my broker (and the lawyer too who also did work for the borrower)
last thing I want is a group of grouchy savy homeless types wandering around poisoning my dogs or worse, so I stepped away and took the hit. Overall I came out ahead with lending and had some adventures, especially the part of managing and collecting rent on a 42 unit slum. A lot of life goin on in one of those places, and my heart skips a beat every timme I drive by the place. There is probably a book in it.
Here is my cheet sheet for private lending:
1) have a contract where hell rains down on the borrower if they so much as sneeze - you can then decide how merciful you wish to be when stuff happens
2) spread your deals among different borrowers...never 2 loans with one guy
3) never have more than 10% of your stake in one deal
4) never use the lawyers broker or the brokers appraiser - you want pros that don't like each other and will rat each other out - otherwise, you become the sucker at the poker table
5) there is nothing more expensive than a cheap lawyer - find the scariest meanest real estate sob in town
6) make it impossible for ANY of the players to know where you live or who you are - first name only
7) that being said, meet personally with the borrower and walk the property
8) only lend on properties you could cope with owning suddenly
9) be prepared for the emotional aspect of power of sale/foreclosure and only lend to individuals you are prepared to foreclose on
10) talk to neighbours on four sides of property - do all the stuff you would do if buying the property
11) do not permit 2nds, 3rds to be added on top of your first, second - ensure the borrower has skin in the game
12) just do first mortgages - a 2nd puts the total bet at risk, with a first, its virtually impossible to lose the whole bet
13) interview the tenants and take a copy of the lease - look for weird clauses (I got caught with a loan on a property that had a baked in below market rent, which suppressed the property value below the presumed value...a holdover from the condo conversion process).
14) set payments up as automatic bank transfers - bank calls you if there is an nsf
15) loan is due if borrower gets divorced or separated.
16) have a very steep amortization (short period ie 10 years)
17) have mortgage in a vacation area - deduct travel to that area against the loan interest (annual inspection of security property!)
18) work with more than one broker - ensure that broker is successfull (and not recently bankrupt, which I did not find out until after my bad deal)