Private Money Fills a Niche in Mortgage Lending

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					hardmoneyletter3                                                                       Page 1 of 3

            Private Money Fills a Niche in Mortgage Lending
  Would you lend to a borrower in foreclosure? Or someone looking to buy a Older - Large
  Commercial Building whose value couldn't accurately be determined with a standard
  appraisal? How about refinancing someone's mortgage so the person can take out
  hundreds of thousands of dollars in cash?

  For "hard money" lenders, it's all in a day's work. These private individuals and small local
  companies operate where even subprime lenders fear to tread, making loans to the
  desperate and needy the same way regular banks and brokers service traditional
  customers. They're harder to find than mainstream lenders and they don't come cheap.
  But they can help hard-luck borrowers make bad situations better -- and sometimes,
  they're a consumer's only choice.

  "There are private investors who, if the interest rate is high enough and the perceived risk
  is low enough, they will put the money up.

  Brokers and other intermediaries who arrange hard money -- or private money -- loans "go
  to people who have money to lend and they match them up with people who can't get
  money any other way.

  Commercial Property buying the 'hard' way

  If that sounds a little like how the Mob works, don't worry. Hard money lenders aren't loan
  sharks who break borrowers' kneecaps when they can't repay. At the same time, these
  lenders aren't your Granny Sue. They charge interest rates and fees that would make
  conventional borrowers cringe and often base lending decisions on whether there will be
  enough equity in their subject homes that they can foreclose and still turn a profit. But
  private money fills a niche in mortgage lending, helping consumers who have specialized
  needs or too many credit problems to get conventional financing.

  "It's across the board," says, a prominent private money investor in Newport Beach,
  California. "You'll see anything from a $150,000 foreclosure to a Two million-dollar loan,
  where somebody just needs so much cash out and can't verify their income to make it
  worthwhile for a traditional lender to look at."

  For instance, a local Mortgage Broker said, one of their hard money capital partners
  recently did a large bridge loan for an investor purchasing a office building, situated on a
  very large parcel of land, near the Dana Point Harbor, Dana Point, California. Regular
  lenders balk at such deals because they don't like financing properties in remote locations
  or those that aren't of standard frame, concrete block or other traditional-type                                          1/28/2006
hardmoneyletter3                                                                        Page 2 of 3

  construction. Investor, buyers sometimes use hard money loans, too. That's because
  conventional lenders get antsy about mortgages for properties that derive a substantial
  portion of their
  value from the land rather than the commercial building and the income it produces .

  Buyers of commercial properties and those who already own such properties and want to
  cash out large amounts of their equity via refinance loans also turn to private money. So
  do real estate investors. These buyers purchase properties on the cheap, fix them up and
  sell them for profit. They use private loans because the loans come with less red tape and
  restrictions than bank loans.

  Borrowers facing foreclosure make up the last major category of hard money customers.
  When someone misses a mortgage payment, that person usually has some leeway to
  bring the loan current. But once a 30-day delinquency turns into pre-foreclosure or a 120-
  day or 180-day one, the lender will usually start the foreclosure process. At that point, the
  borrower is so far behind that even subprime lenders are reluctant to come in, refinance
  the loan and start the clock ticking again.

  A hard money lender, on the other hand, may be willing to give that person a new loan.
  The customer can use it to pay off the original lender, gaining enough time to sell the
  property and find a new place to live. Borrowers who miss payments because of
  temporary problems, such as a job loss, can benefit, too. They can use the breathing room
  a hard money loan provides to rebuild their credit. By making payments on time for a year
  or two, they'll lay the groundwork for a future refinance into a more favorable loan.
  "These are temporary fix loans. That's all they are -- to help people get out of a bad

  If you find one -- be prepared to pay

  That said, hard money borrowers face a steep hill to climb. For starters, hard money
  lenders can be difficult to find. Most operate only within limited geographical areas
  because they like to see the properties they're lending against personally and know the
  area around them. Borrowers can try calling around to various mortgage brokers, some of
  whom have private investors who do hard money loans or know of people who do. Or,
  they can check their local newspaper's classified advertisement section. Many papers
  have listings that read something like this: "Can't get a loan? Call Us. Private Money
  Available. Opportunity Capital Available."

  Customers who can find a hard money lender shouldn't expect to be offered grade-A
  terms, though. Private money mortgages typically have rates well into the double-digits
  and often come with several upfront points. People who don't own at least 30 percent or
  40 percent of their properties probably won't even be able to get a loan. That's because
  hard money lenders limit borrowers' loan-to-value ratios so they can at lease brake even if
  they have to sell off their properties during a foreclosure. Consumers need to watch out
  for "loan-to-own" predators, too. They structure hard money loans in such ways that
  borrowers inevitably fail just so they can take possession of their properties and profit off
  their sale.

  "It's kind of the same rules you get on any loan -- clearly understand what it is you're
  getting into. Understand what the fees are and what the actual cost of the money is to
  you," our Capital Partners' say. "Be smart."                                           1/28/2006
hardmoneyletter3                                                                      Page 3 of 3

  Despite the pitfalls, lenders say that hard money loans can provide borrowers a lifeline in
  times of need. Consumers just need to make sure their loans will help get them out of
  debt, not bury them even further.


  "If a Commercial Property is worth $1,000,000, the loan-to-value on a hard money loan may
  be 60 to 65 percent ( Larger LTV Ratios on a Case by Case Basis), so maybe $650,000
  maximum on a first mortgage is loaned against the property" to pay off the old lender
  who's preparing to foreclose. it does not mean that that customer can't take the property
  and sell it tomorrow for $1,000,000 and reap the benefits of that additional $350,000," he
  adds. "A person is better off paying 14 percent, or a higher rate than the normal rate of 7
  or 10%, to keep the property rather than lose it. Or say you don't get $100,000 for it, you
  get $90,000. Ninety is better than zero."

  When you need fast hard money loan, you need a commercial real estate lender who can
  and will respond within your pressing time frame. When you contact the Papke Group, you
  get immediate response that includes reviewing and analyzing your hard money
  commercial loan within 24 hours. We have closed loans – including complex loans -- in as
  little at three working days.

                     PapkeGroup-Emerald Financial and its Capital Partners
                                an Equal Opportunity Lender.

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