The Foreclosure Process

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Foreclosure is the process of taking back secured real estate on a defaulted loan. It can only begin once a true default has occurred, which we discussed in our last post. Utah uses a non-judicial foreclosure based on the trust deed. Other states must go through the court system.

Once a default has occurred, you must provide notice to the borrower of the default and give him 30 days to bring current. This is called the “Notice of Presentment.” If he does not bring current in 30 days, you can file the notice of default. This notice and 30-day waiting period, however, can be waived by the borrower if it’s included in the note. Make sure it’s in yours.

The true beginning of foreclosure is the notice of default that is recorded on title to the property. This marks the 90-day waiting period during which the borrow can bring the loan current. He must bring the loan fully current and within the 90 days, and the lender must accept it. If default is not fully fixed or later than 90 days, the lender can move to the auction phase.
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Hey Business Owners, Do You Understand The Value of Time?

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“When the storm has passed, put your energy into rebuilding your life, don’t waste time looking back.” -Leon Brown

Entrepreneurship is the conversion of your knowledge, talents, guts, and time into money.

Time is valuable, although the value differs from person to person. And while I recently covered the best way to think about the value of your BUSINESS ... this calculation is actually a little easier.

But it takes a certain mindset.

You see, when most people place value on their time, they do so based on an eight-hour workday, which is not all that correct. It's hard to get eight productive hours out of each day.

One study involving Fortune 500 CEOs revealed that they achieved 28 productive minutes a day.
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Loan Defaults

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If you are going to be a lender, you’ll need to understand how your borrower might come into default and what to do about it.

The first way to default is failing to comply with any term of the note. This includes making a monthly payment or paying off the note when due. Monthly payments can be tricky. Your note needs to be clear about what constitutes just a late payment versus one that causes a default. General mortgage rules give the borrower 15 days from the due date to make payment without penalty. Then, he can make payment up to 30 days with just a late fee. Then, if payment is not made within 30 days, the note is in default.  Remember, however, that your note can modify any of those payment terms! You just need to know what those terms are. Your note should also be clear on the exact day the note is due.

Also, default can occur under ANY term of the note or deed. Your documents should include that maintaining property insurance and the payment of property taxes are both required or it will result in default. Your note may have other terms as well, such as not putting any other lien on the property. The key here is to really understand your note and deed. This is why you should have and provide your own loan documents that cover all the terms you require. You won’t get this from a title company.
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State Tax Revenue Collection and How It Might Affect YOUR Wallet

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"A man should always consider how much he has more than he wants." -Joseph Addison 

The financial picture for the various states in our nation is a mishmash of various revenue sources (and expenses). 

Unlike, say, the federal government, the states cannot print money. So, they are forced to go hunting for it. And they get it from a few primary sources: sales tax (based on purchases/consumption), income tax (individual and business taxes based on income), property tax and "other" taxes like the tax on fishing licenses, driver's licenses and a lot of other smaller items.  

And the most volatile -- and COVID-affected -- of these sources is ye olde income tax. Sales tax has obviously taken a hit as well (but people still need to buy stuff) and property taxes, well ... more about that next week. 
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The Risks of Hard Money Lending: Part 3 of 3

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In Parts 1 and 2, we explained that loaning your own money could be a licensed or regulated activity. We also explained that loaning other people’s money for a fee is always a licensed activity. The other risk I see is when investors are doing these loans without the proper protections. Here is a good checklist to follow.

  1. Confirm the licensing issues for the kinds of loans you or your pocket lenders are making.
  2. Be competent at valuating the property and do so yourself. Do not rely on the borrower’s numbers. Learn loan-to-value!
  3. Always use a well-prepared promissory note (loan document). I see many that are not sufficient. You should have one drafted by an attorney, not a title company.
  4. Always secure the loan with a trust deed (mortgage). ALWAYS!
  5. Always run the loan through a title company or attorney’s office that confirms the recording of the trust deed in the appropriate position! The biggest fraud in real estate is people simply giving others money.
  6. I recommend title insurance on all first and second position loans.
  7. Oversee the project. Keep in contact with your borrower.
  8. Understand how to make modifications to the loan if necessary.
  9. Understand what constitutes default and the foreclosure process.

Lending is risky from both a licensing standpoint and protection of funds standpoint. Good hard money lenders understand how to comply with regulation and protect their money. In the next two posts will cover defaults and foreclosures.
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Details of the Payroll Protection Program Flexibility Act (PPPFA)

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Just when we thought that the business-related news might slow down for business owners...

Not only are unemployment numbers improving (much to the surprise and delight of the stock markets), but ...

Congress passed, and the President has signed a bill that affords businesses who received the PPP (whether in the first or second round) some big flexibility when it comes to applying for forgiveness.

Namely:

  1. 60% Threshold: Business owners  around the country only need to use 60% of the loaned money for payroll*, not 75% as previously required. The other 40% can be used on rent / mortgage, utilities, and loan interest.
  2. 24 Weeks: Business owners can now spend this money over 24 weeks (through the end of this year) while still being eligible for forgiveness, as opposed to the original 8-week window. This gives you more flexibility on how you want to spread that money out.
  3. 12/31 Hiring Window: You can now count anyone rehired through the rest of the year, not the previous deadline of June 30th.
  4. Terms: Whatever PPP funds that don't get forgiven will go into a 5-year loan** at 1% (instead of a 2-year). With the end-of-year forgiveness window, that means your first payment might not be until May '21.

You might have noticed I put some asterisks on a couple of those items.
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The Risks of Hard Money Lending: Part 2 of 3

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In Part 1 we defined various types of loans and mortgages, which you should read if you haven’t. Be clear that making a closed-end, first position loan for the purchase of real estate is a licensed activity. This is where a lot of investors are taking a big risk.

This is because many investors are loaning funds without understanding the licensing issues. And many others are getting friends and family to loan them money. This can put your Uncle Joe or Aunt May at risk as well. While there may be arguments or exemptions that permit making these loans, there are arguments that it requires a mortgage originators license! The Division has broad authority over these kinds of loans!

Just because there are arguments in your favor, does not mean you will be successful if you—or your lenders—are investigated by the Division. If they deem that you have engaged in mortgage loan origination, the fines can be very steep. Before you engage in making or getting these loans from others, you should truly understand the rules and risks, and how to structure these loans correctly. That is beyond a blog post. You should consult an attorney.

In the above examples, I have assumed that the lender earning the interest is loaning his own money. There is a big difference if you are loaning other people’s money in which you make a fee or spread. What you’re doing now is “connecting” a money-lender with a borrower for compensation. This ALWAYS requires a license!
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Which Stimulus Payments Are Taxable (and Which Aren't)

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"Oh, my friend, it's not what they take away from you that counts. It's what you do with what you have left." - Hubert Humphrey

As difficult as it might be right now, let's project forward to next year.

Let's cross our fingers and believe that we all get through this donkey of a year that is 2020.

Maybe you have a business that clung to life, and you're headed towards recovery in 2021. You took the PPP, or perhaps the EIDL (or both). Or perhaps you had to take unemployment for a period of time, but are slowly (but surely) getting back on your feet. The economic stimulus checks helped.

But then ... taxes are due.

Uh oh.

Well, don't fear my friend: Janet Behm is here to set your mind at ease.
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The Risks of Hard Money Lending: Part 1 of 3

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Over the last year, I have seen a dramatic rise in “hard money” lending not only among investors, but by friends and family of investors. Almost all are doing so without understanding there are rules and risks with lending. To understand these rules and risks, we’ll start with defining lending terms.

Private lending is any loan between a borrower and a non-institutional lender. This could be a loan from your father for the purchase of a car or education. Private loans can be unsecured or secured on things like vehicles, personal property or inventory. Private loans are generally not regulated.

Hard money lending is a private loan that is secured on a hard asset like real estate through a trust deed. Also, these loans are often referred to as “mortgage” loans. Mortgage loans are regulated. And may require a license to provide!

A closed-end mortgage is a loan for a fixed principal amount that is paid down, like most mortgages you think of. An open-end mortgage has no fixed principal. A HELOC is an example of an open-end mortgage. Mortgages, as you probably know, can also be in a first or lower position. This relates to which mortgage is recorded first.
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