Hard money lender among businesses seeking bankruptcy in Nevada

by LJ Miehe on March 30, 2011

Editor’s Note Here is an interesting peek into a usually more private and out of the lime light world of hard money lending.  The Vegas Sun reported that in local business bankruptcy filings, a prominent large private money (or “hard money”) firm filed for bankruptcy protection in Nevada Court.  In this disclosure they had to make light into their assets and liabilities.  Hard Money lenders are considered the fastest funding source when it comes to funding commercial real estate deals.  I don’t mean just commercial spaces but also fund rehabilitations (“rehabs”) of existing residential homes, multi-family units and apartment buildings.

Hard money lending  is practiced as a short-term and low risk venture between a borrower and lender.   The short-term nature comes from the use of cash to fund these deals which makes closing much faster, sometimes as quick as a single week.  The lenders want to make interest and upfront fees on each transaction and fund as many deals as they can with their capital.   If they let their money sit in a deal too long, they will be losing out on being able to make more “good” loans to other borrowers.  The second is reducing risk in the deal, with this said they look at the property much more than the borrower when evaluating deals.  Private money lenders assume that you could fail on the deal and they will be stuck with a property that will need to be sold so they can become “liquid” again.

For that, they make sure the property is such a good value that they know they will be able to recoup not only their principal but also some of the lost profits for the ordeal.  You will be expected to pay a large upfront fee and usually high single to low double digit interest rates for the duration of the loan which are almost always under 18 months and usually much shorter.  Different states have various real estate laws and regulations.   Nevada is considered a “trust deed” state.  A Trust Deed is a commercial real estate contract that allows the lender to avoid the foreclosure process and get possession of the property much quicker than in other cases and  various states that force the foreclosure process to determine ownership and debts.

In the news article they mentioned that this firm, “originates, underwrites, funds and services short-term real estate loans on behalf of investors.”   In their assets it is mentioned that had large trust deed holding which is the contract that their borrowers signed when they got funding from this company.  Because of its private nature, the rules for them are not as constrictive as other type of real estate lending sources.  In the filing it is mentioned that they had $44 million in liabilities to only $7.5 in assets or a 16% reserve ratio which I am happy to say is actually better than our commercial banks.  Interesting.  What I loved is the if you know about the hard money industry you know it has a hard marketing ethic and the company that is still “in bankruptcy” still found a way to put some advertising for the firm in the new piece, “In 2011, IFA believes there will be outstanding opportunities to make new first trust deed loans at 10 – 40% of the original debt on the property.”  Hilarious.

Las Vegas Sun – As a hard money lender, the company said it originates, underwrites, funds and services short-term real estate loans on behalf of investors.  This industry, which boomed during the mid 2000s in Southern Nevada, has suffered with the recession and associated foreclosures.  The Integrated petition, signed by President William Dyer, listed $44.9 million in liabilities against assets of $7.5 million.

Creditors include Vestin Realty Mortgage, listed as being owed $5.15 million for a debt that is disputed. Bank of Nevada is listed as a secured creditor with a claim of $4.8 million against interests in trust deeds.  Several noteholders are listed as creditors while the company’s assets include $6 million in real estate in Phoenix and Riverside County, Calif.; and $1.42 million in loan servicing fees and expenses listed under accounts receivable.

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