Inevitably high net worth borrowers run into a scenario that requires equity based financing (also known as a private money loan or hard money loan). Since high net worth borrowers, at least at the moment, are gradually being stricken from the traditional financing mold, the onus is placed on the mortgage broker to find an alternative source of financing for their valuable projects.
Whether the borrower is a corporation or just a high net worth individual, they’re needs are typically very similar: they either need capital to move a valuable project forward or they need access to liquidity to handle day-to-day expenses. Whatever their situation, the circumstances are typically always the same – they have money, but it’s tied up in their assets. Enter private money lenders: mortgage finance companies with the ability to underwrite and fund on an equity basis without making borrowers jump through circus hoops to get access to the capital that they need.
The process of obtaining an equity loan can be simple at times, especially when borrower have significant equity in a property and are looking for a smaller loan amount to bridge a financial need. However, it gets much trickier when a borrower has plenty of equity but it’s spread out over multiple assets. It’s even worse when those assets are spread out into different states, as is the case when borrowers have multiple residences or have investment holdings in a number of different areas. There are several reasons why this can be a deal breaker for many private lenders:
1. Most private lenders will not operate in all of the states that the assets are located in.
A private lender may be willing to lend in Florida, but the second that they have to secure a second home on the Jersey shore as additional collateral they’re suddenly not interested in financing the loan submission anymore.
It could be a licensing issue, an underwriting issue, an investor issue, or even an experience issue. Whatever the reason, geography is going to be a deal killer to plenty of private money lenders. If they don’t lend in a number of different states, their propensity to handle high net worth borrowers plummets.
2. Most private lenders aren’t willing or prepared to handle the legal issues with loans that cross state borders
Especially when it comes to mortgage lending, every state’s laws and procedures are different. Private lenders often develop a comfort zone in a specific state or area of the country simply because they get to know the laws and understand the risks inherent with a defaulted borrower in that geographic location. Taking on a new state and attempting to understand its laws and how they’ll relate to the laws in another state can be daunting. The complications of cross-collateralization across state border can be difficult, and many lenders simply won’t venture out that far.
3. Most private lenders don’t want the hassle of managing multiple pieces of collateral
Sometimes the problem lies in the simple fact that a lot of lenders don’t like cross-collateralization. Either they’re not set up for it, it doesn’t fit their philosophy or it’s too complicated for them. It doesn’t fit into the common formula of: take application, set LTV, appraise property, approve loan, fund loan. There’s a lot of work that goes into assessing the risk of cross-collateralizing as it related to foreclosure, and many lenders simply aren’t going to be willing to go there.
The good news in all of this, of course, is that we work with a Lender willing to go there. We specialize in loans to high net worth borrowers that have property in multiple states and require equity-based financing on their real estate. We regularly approve and fund loans for borrowers that have multiple pieces of collateral to pledge for an equity-based loan. We actively lend in all 50 states and we’re not afraid to deal with slightly more complicated transactions for both commercial and residential loan requests.
If you’re looking for a private loan, hard money loan, or equity-based financing and you’re struggling to find a lender with the flexibility and geographic reach that you require then we are the source for you.
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