When doing such mortgages we always personally inspect the properties and make effort to meet with the borrowers. This gives us a good indication of value. That may be simplistic starting point but essential.
Often times we also request an appraisal of the property which is a cost to the borrower. Any costs to draw up legal papers are also a cost to the borrower and is indicated in writing prior to proceeding with the loan. Further, all discharge costs are also the responsibility of the borrower.
Any terms and conditions of the mortgage such as a 3 month pre penalty clause, charges for NSF cheques, attendance for insurance issues and many other clauses are laid out in the beginning. Cost for foreclosure proceedings are also indicated and added to the ultimate payout should the loan go bad.
Make sure you as the lender are named on insurance policies.
Just some things we do. Hopefully this is helpful and the kind of info u may be looking for.
If such legalese is dealt with in the beginning, should the property proceed to forecloser then the ending process is less stressful.
Bookeeping, on a simple spreadsheet is not hard either.
This is something I have done (in Ontario). I have been winding out of it, but I still have a couple of boring and productive firsts on a commercial condo and a gas station.
My general advice is that this is like rock climbing or flying. You have to be detail oriented and not get complacent.
I would say ALWAYS get an appraisal. My big one mistake was taking my brokers word on it, and I placed a second mortgage bridge loan on a large property, just at the moment the borrower went nuts.
Then it turns out the broker did it as an off books loan so I couldnt sue her company. I could have yanked her license and had her suicide on my conscience. I could have sued the borrower and pushed a nut case over the edge, wondering when he was going to show up at the back door with a weapon. I eventually slowly backed out and only took a 50% haircut.
So, strict security regarding borrowers knowing where you live, or being able to figure out where you live.
Another trick...ask to see any leases on the property or ensure any verbal agreements are disclosed. I had one situation where the property was compromised by an agreement between the owner and the renter that he could live at a reduced rent for life....this was a payoff to the renter to get him to waive an objection to condoizing a rental property...he was the last holdout.
When getting into lending, you are going to be pressured by brokers and borrowers to do things that you shouldn't. High pressure sales and promises of big fast payoffs. If you are not a skeptical cool customer who knows how to say no, you are going to get into trouble. I had one such guy, who I barely managed to say no to. Years after I still get calls from the police who are investigating this guy for fraud against seniors.
At first you are going to have a few easy deals, taking in 10% plus, and getting fees every time the borrower passes gas. You will feel giddy. This is the time to buckle down and stay conservative and wary. Simple rule is to not place more than 10% of your stake in one property or with one borrower, because shiatsu WILL happen.
what is the saying...there are old lenders, bold lenders, but no old bold lenders - or my version...find the courage to do that dangerous but rewarding thing, but be the most cautious scared person doing it.
Oh yeah, and there is nothing more expensive than a cheap lawyer. Find out who is the meanest litigating reptilian sob in your area and get established as his client. Otherwise, in a fight, you may find the other guy has the best guns on this side.
I don't think this the sort of thing for a softy. In my quirky way, I try to be Christian person of sorts. It is very hard to do this hand to hand combat stuff if you are also thinking about keeping your soul intact. This is one reason I am backing out of this. Another way to put it, when placing a loan, think about how you are going to feel about foreclosing if it goes sour. It is better if you don't like the borrower.
Other ideas.
- try to impose the steepest amortization curve the borrower will accept, which builds owners equity (skin in the game) quickly
- if the brokers won't let you in, advertise directly in the paper, then shop for a junior broker to clerk the deal, if a broker is required (which is the case in Ontario)
- one of the best things I did was take a mortgage consultants certificate
- make sure the appraiser is arms length to the broker - pick your own guy