SPECIAL REPORT
Fair Housing & Lending
The Official Magazine of AAPL March/April 2017
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PAGE 22
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2 PRIVATE LENDER
CONTENTS MARCH | APRIL 2017
5
7
Corner Office
12
What’s Current
Special Focus: Fair Housing & Lending
Compiled from Industry Sources
by Teresa Bitler
22
29
Why AAPL is committed to ensuring fair lending.
Trending industry topics and news from around the world of private lending.
18
by Linda Hyde
Special Focus: Fair Housing & Lending
A primer to help lenders understand how the Fair Housing Act impacts them.
Lender Limelight
Today’s concept of fair housing goes beyond Title VIII of the Civil Rights Act of 1968.
Legal
Geraci Law Firm co-founder is a woman of many interests—and achievements.
Fighting Fraud: How SBA lenders can avoid False Claim Act violations. by Dennis Baranowski, Esq.
with Christina Geraci
by Andy Williams
32
38
Alternative Angle
42
Finance
Alternative lenders are leading the way in the fintech revolution.
Legislation
Accelerated growth in the private lending industry has wide-ranging benefits.
What is the outlook for federal housing under the Trump administration?
by Robert ‘Bobby’ Montagne
by Brian Fritton
48
by Jeffrey N. Levin
52
Legal
56
Business Strategy
Five important ideas for financing your real estate transaction.
Manage & Lead
Implement qualifying criteria to help limit risk to your lending business.
by Nema Daghbandan, Esq.
A single employee’s lapse in ethical behavior can damage the entire workplace. by Chrissey Breault
by Mike Hanna
60
Investor Perspective
How an investor can capitalize from Fannie Mae’s rubber stamp. by Abhi Golhar
64
Manage & Lead
Anyone can claim to be a leader; the key is getting others to follow you. by Linda Hyde
MARCH/APRIL 2017 3
4 PRIVATE LENDER
PUBLISHER’S LETTER
A Living Commitment to Fair Housing R. MICHAEL WRENN CEO, Affinity Enterprise Group
EDDIE WILSON President, Affinity Enterprise Group
LINDA HYDE Executive Director, AAPL
LINDA WIENANDT Editor-in-Chief
HEATHER ELWING-DIXON Editorial Assistant
CHRISSEY BREAULT Director of Marketing and Member Services, AAPL
TIM DRAPE Senior Account Manager, AAPL
EMILY BOWERS Designer
CONTRIBUTORS Dennis Baranowski, Teresa Bitler, Nema Daghbandan, Brian Fritton, Abhi Golhar, Mike Hanna, Jeffrey N. Levin, Robert ‘Bobby’ Montagne, Andy Williams
COVER PHOTOGRAPHY Rachel Varla of Varla Entertainment Private Lender is published bi-monthly by the American Association of Private Lenders (AAPL). AAPL is not responsible for opinions or information presented as fact by authors or advertisers.
SUBSCRIPTIONS Visit www.facebook.com/aaplonline or email PrivateLender@aaplonline.com.
BACK ISSUES
Each April we come together as a community and as a nation to celebrate the anniversary of the signing of the Fair Housing Act. The Act, passed by Congress shortly after the assassination of Dr. Martin Luther King Jr. in 1968, was developed to eliminate housing discrimination and to create equal opportunity within every community. What does this mean to a lender? It means the opportunity to impact a community in a positive light. “A ZIP Code Should Not Determine a Child’s Future” (A public service message from the U.S. Department of Housing and Urban Development in partnership with the National Fair Housing Alliance.) This is a very strong message, standing behind the idea that everyone deserves a fair chance to succeed in life. That includes access to the best schools, quality jobs, affordable housing and equal housing opportunity regardless of one’s race, gender, sexual orientation, religion, national origin, disability or family status. As pioneers in the lending industry, we must make sure everyone is and stays compliant with the requirements of the Act—ensuring all persons can achieve their goals and dreams. Our commitment to fair housing is a living commitment, one that reflects the needs of America today and prepares us for a future of true integration. ■ (for printing)
(for spot color, silkscreen, or embroidery)
(for any black and white application)
LINDA HYDE
Executive Director, American Association of Private Lenders
Visit www.issuu.com/aapl, email PrivateLender@aaplonline.com, or call 913-888-1250. For article reprints or permission to use Private Lender content including text, photos, illustrations, logos, and video: E-mail PrivateLender@aaplonline.com or call 913-8881250. Use of Private Lender content without the express permission of the American Association of Private Lenders is prohibited. www.aaplonline.com Copyright © 2017 American Association of Private Lenders. All rights reserved.
MARCH/APRIL 2017 5
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WHAT’S CURRENT LENDIT AWARD WINNERS NAMED
■T op Fintech Equity Investor
Congratulations to American Association of Private Lenders member PeerStreet and all the other winners of the inaugural LendIt Industry Awards. PeerStreet was named Emerging Real Estate Platform at the March 7, 2017, awards ceremony culminating the sold-out—and largest ever—LendIt USA Conference in New York City.
■M ost Innovative Bank
QED Investors Cross River
■T op Service Provider
First Associates
■B est Journalist Coverage
George Popescu, Editor in Chief, Lending Times
BREW JOHNSON AND BRETT CROSBY, PeerStreet Co-Founders
■B est in Show
Deloitte
Source: www.lendit.com/usa/2017/awards
ABS PARTNERS WITH PAYMENT DATA SYSTEMS
Here is the complete list of winners: ■E xecutive of the Year Applied Business Software Inc. (ABS), developer of The Scott Sanborn, president & CEO, Lending Club Mortgage Office® a leading loan servicing software solution, ■ I nnovator of the Year is partnering with Payment Data Systems (NASDAQ:PYDS), Lemonade a leading integrated electronic payments solutions provider, ■ Fintech Woman of the Year to offer enhanced functionality for processing electronic Jilliene Helman, CEO, RealtyMogul payments via its ACH module, as well as online payment ■ Top Consumer Lending Platform processing by check or credit/debit card. ZOPA Users of The Mortgage Office have a powerful collection ■ Emerging Consumer Lending Platform tool enabling them to effortlessly process electronic Flexiti Financial payments from borrowers, either by phone or 24/7 via ■T op Small Business Lending Platform ABS’s subscription based web portal. With an easy signup Funding Circle process, competitive fees, real time verification, and world■ Emerging Small Business Lending Platform class security, The Mortgage Office® users continue to enjoy ApplePie Capital cutting edge software. Jerry Delgado, President and Co■T op Real Estate Platform Founder of ABS said, “We are excited about this partnership LendingHome with Payment Data Systems as it falls directly under our goal ■E merging Real Estate Platform of providing our clients with the most user-friendly, statePeerStreet of-the-art loan servicing software solution in the industry.” ■ Top Fund Manager Louis Hoch, President and CEO of Payment Data Systems Prime Meridian Capital Management added, “This partnership takes us into the new vertical of ■ I nternational Innovator of the Year consumer mortgage loan servicing software and further Trulioo, The Identity Bureau diversifies our customer base.” ■T op Law Firm Web: themortgageoffice.com Chapman Cutler LLP Phone: 800-833-3343 ■T op Accounting Firm Source: Applied Business Software, Inc. Deloitte MARCH/APRIL 2017 7
Sell your loans to PeerStreet quickly and efficiently PeerStreet provides unprecedented liquidity to the private lending industry. Our team is flexible, easy to work with and we can purchase loans at a low cost.
PeerStreet can be your capital and technology partner Here are just some of the benefits of working with PeerStreet: • Free up capital so you can originate more loans • Reduce your overall cost of capital • Gain access to a diversified investor base without the hassle • Benefit from access to PeerStreet’s diversified investor base • Maintain borrower relationships • Gain a partner, not a competitor
This notice is issued with and forms an integral part of information supplied in the form of a printed document (“Information”) and should be particularly noted in connection with that Information. This document has been prepared by Peer Street, Inc. (“PeerStreet”) for informational purposes only and without regard to the particular needs of any specific recipient. All Information is indicative only and may be amended, superseded or replaced by subsequent summaries and should not be considered as any advice whatsoever, including without limitation, investment, legal, business, tax or other advice by PeerStreet. Any such advice should be sought from an appropriately qualified and/or authorized professional. PeerStreet does not guarantee the accuracy or completeness of the Information which is stated to have been obtained from or is based upon trade and statistical services or other third party sources. All opinions and estimates are given as of the date hereof and are subject to change without notice. The Information is not intended to predict actual results and no assurances are given with respect thereto. The Information is not an invitation, offer or inducement to acquire or dispose of, or deal in, any interest in security, or to engage in any investment activity. Strategies or investments of the type described herein involve risk and the value of such strategies or investments may be volatile. Such risks include, without limitation, risk of adverse or unanticipated market developments, risk of counterparty or issuer default, risk of adverse events involving any
PeerStreet’s Lender Platform
Please contact us to learn more about PeerStreet: Lender Onboarding Team lenders@peerstreet.com
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underlying reference obligation or entity and risk of illiquidity. This brief statement does not disclose all the risks and other significant aspects in connection with transactions of the type described herein.
8 PRIVATE LENDER
www.peerstreet.com/privatelenders
WHAT’S CURRENT FINANCE OF AMERICA LAUNCHES COMMERCIAL BUSINESS UNIT FOR REAL ESTATE INVESTORS Finance of America, a diversified national lender, has launched Finance of America Commercial, a new business unit designed to serve real estate investors. The business unit was established following Finance of America Holdings’ investment in B2R Finance and B2R’s simultaneous acquisition of certain assets from private money lender Jordan Capital Finance. Under the terms of the transactions, B2R Finance will operate under a new name,
is clear, and we believe that Finance of America Commercial will continue to be a leader in the space,” said Mark Filler, president, Finance of America Commercial. “I am excited to be leading this business and am very much looking forward to expanding our distribution channels, continuing to improve upon our products and to providing an excellent experience for our borrowers.” The transactions closed in mid-February and terms were not disclosed. Source: www.financeofamerica.com
PATCH OF LAND ADDS VETERAN EXECUTIVES TO MANAGEMENT TEAM
Finance of America Commercial LLC, and joins Finance of America’s leading portfolio of brands. Jordan Capital Finance CEO Mark Filler will serve as
Leading online real estate lending marketplace Patch of Land has rounded out its management team, adding Chief
president of the new business unit. Jordan Capital SVP
Financial Officer Min Lee and Chief Investment Product
Ben Fertig and B2R SVPs Joe Hullinger and Matt Soto will
Officer Matthew Zall, along with previously announced Chief
continue to lead sales efforts and oversee operations for
Marketing Officer Robert Greenberg.
the organization. “The addition of commercial loans to our existing suite of
Lee joins the company from Credit Suisse, where he was a director in the Real Estate, Gaming and Lodging team responsible
products is a natural progression for us and we continue to
for the execution of advisory and financing transactions. Lee
execute against our vision of becoming a leading diversified
assisted clients with over 25 financing and M&A advisory
national lender with the launch of this new business unit,”
transactions, which have raised in excess of $15 billion of debt
said Brian Libman, executive chairman, Finance of America
and equity financings for public and private companies. Lee’s
Holdings LLC. “The launch of Finance of America Commercial
expertise in financing strategies will allow the company to grow
enables us to reach new borrowers and will help us continue to
and manage its credit lines and will add
strengthen awareness of the Finance of America brand.”
to the company’s strategic planning by
Finance of America Commercial will continue to serve borrowers from both Charlotte, North Carolina, and Chicago, Illinois, as well as from regional offices throughout the country.
applying sophisticated statistical and predictive processes. Zall brings to Patch of Land more than
In addition to maintaining direct relationships with real estate
12 years of real estate and mortgage
investors, Finance of America Commercial will expand its
experience, as well as expertise in
focus on independent mortgage brokers and will also leverage
financing and product development. He
opportunities to work with mortgage advisers within the
pioneered three of the industry’s first-ever
Finance of America family of companies.
multi-borrower single-family rental securitizations, helping
“With nearly 16 million rental units in the United
MIN LEE, Chief Financial Officer
build Blackstone Group subsidiary B2R Finance (now known
States and residential purchase-rehab-resale transactions
as Finance of America Holdings, LLC) from start-up to a
reaching new highs, the real estate investment opportunity
multibillion-dollar lender in only a few years. Prior to joining
MARCH/APRIL 2017 9
10 PRIVATE LENDER
WHAT’S CURRENT B2R, he was a commercial real estate (CRE) trader at J.P. Morgan and Bear Stearns. He joins Patch of Land as the firm prepares to expand into the single-family rental market with longer term, permanent financing products. With the addition of Lee, Zall and Greenberg, a 25-year marketing and advertising veteran who led marketing and lead generation at B2R Finance, Patch of Land founders
DISTRESSED PROPERTY INVESTMENT FORUM April 6
South Windsor, CT
RCN Capital’s Distressed Property Investment Forum will bring together residential and small-balance commercial property investors, REO experts and real estate professionals for an evening of networking and education. Web: http://distressedpropertyinvestmentforum.ezevent.com/ Phone: 860-432-5858
Jason Fritton and Brian Fritton have assembled a veteran management team with deep experience in growing lending MATTHEW ZALL, Chief Investment Product Manager
and investment businesses. Other 2016 executive team hires include CEO Paul Deitch, who joined from Oaktree Capital Management, where he scaled
the company’s technology, operations and investor relations functions to empower the firm’s growth from $50 billion to $100 billion in assets under management; SVP of Operations and Underwriting Gina Donatoni,
ACTIVATE 2017 April 23-25
Newport Beach, CA
At Innovate, you learned the latest cutting-edge ideas. Now it’s time to take those ideas and apply them. Like a chemist who takes a dormant chemical and activates it, so too will we take Innovate and activate it to help you continue to grow your private lending business. Web: http://geracicon.com/activate/ Phone: 949-298-8050
a 30-year veteran of several billiondollar mortgage companies, who most recently scaled a team at PennyMac that
THINK REALTY NATIONAL CONFERENCE & EXPO
processed 800 mortgages per month;
April 29
and SVP of Loan Production Ben Shaevitz, whose sales team leadership helped grow PennyMac into the eighthlargest mortgage loan originator and servicer in the United States.
ROBERT GREENBERG, Chief Marketing Officer
Source: www.patchofland.com
UPCOMING EVENTS IMN’S 4TH ANNUAL REAL ESTATE PRIVATE EQUITY FORUM April 4-5
Miami, FL
IMN is pleased to announce the 4th Annual Real Estate Private Equity Forum on Land, Homebuilding & Condo Development. Join IMN to discuss all of the critical issues in the real estate private equity sector. Web: https://www.imn.org/real-estate/conference/LandHomebuilding-East-17/ Phone: 212-901-0506
Dallas, TX
This is THE event for real estate investors, landlords, property managers, wholesalers, note buyers, private lenders, rehabbers and other real estate entrepreneurs. Tap into the knowledge and experience of the best and brightest enterprising minds in the industry and leverage their lessons to improve your competitive advantage. Web: www.thinkrealty.com/events/dallas Phone: 816-398-4053
AAPL CERTIFIED FUND MANAGER COURSE May 17
Atlanta, GA
The American Association of Private Lenders (AAPL) Fund Manager designation bridges industry practices,investment theory along with ethical and professional standards to provide investment analysis and portfolio management skills. The intensive four-stage course, designed by industry veterans, will help you answer the questions, “Is a mortgage fund my next growth opportunity?” Web: www.aaplonline.com/events MARCH/APRIL 2017 11
SPECIAL FOCUS: FAIR HOUSING & LENDING
A Fair Housing Primer Private lenders need to be aware of how the Fair Housing Act can impact their success. by Teresa Bitler
T
he Fair Housing Act was designed to protect against discrimination and
unfair practices in the process of purchasing
opportunities. Discrimination may be overt or
subtle and can occur at any stage of the lending
process, from the marketing of loan products to
residential real estate, including applying for
the servicing of the loan.
lenders, it’s essential to understand how the
er probably would never intentionally refuse
tunity Act (ECOA) protect consumers, how you
skin or their religion, but the discrimination
the consequences could be.
seemingly innocent as providing additional
Protected Classes
to an applicant in a class protected by the Fair
and acquiring a reasonable loan. For private
This is where it can get tricky. A private lend-
Fair Housing Act and the Equal Credit Oppor-
to make a loan based on the color of someone’s
can inadvertently violate these acts and what
doesn’t have to be intentional and can be as
Enacted as part of the Civil Rights Act of
1968, the Fair Housing Act prohibits discrimi-
instruction to one applicant that isn’t provided Housing Act and ECOA.
Other potential violations include steering
nation in residential real estate-related trans-
an applicant toward an inferior (or subprime)
religion, sex, familial status (such as pregnant
evaluate collateral; imposing different terms
of 18) and handicap.
points, fees and duration; and providing inferi-
actions based on race, color, national origin,
loan product; using different standards to
women or families with children under the age
and conditions to loans such as interest rates,
The ECOA builds on the Fair Housing Act,
prohibiting discrimination in credit trans-
or servicing.
actions based on race, color, national origin,
Disparate Treatment
applicant is capable and old enough to enter
a violation of the Fair Housing Act and the
from a public assistance program and appli-
treatment, comparative evidence of disparate
religion, sex, marital status, age (as long as the
When determining whether there has been
into a contract), applicant’s receipt of income
ECOA, the courts use three tests: disparate
cant’s exercise in good faith of any right under
treatment and evidence of disparate impact.
the Consumer Credit Protection Act.
Disparate treatment occurs when a lender
The discrimination doesn’t even have to be
acted upon to be a violation of the Fair Housing Act and ECOA. A private lender can’t tell an
applicant, “I don’t like to make loans to (Mus-
Both the Fair Housing Act and the ECOA
makes a lending decision based on one or more
everyone—including United States citizens,
age. For example, a lender can’t offer $10,000 in
Even if you do lend money to the categorized
documented residents—has the same lending
age and $15,000 in credit to applicants over 30.
than you would any other customer in the way
apply to private lending and ensure that
of the prohibited factors, such as religion or
lims/Baptists/etc.), but the law says I have to.”
registered aliens (green card holders) and un-
credit to applicants between 21 and 30 years of
applicant, treating him or her no differently
12 PRIVATE LENDER
THE ACTS Fair Housing Act
Sec. 805. Discrimination in Residential Real Estate-Related Transactions (a) In General. — It shall be unlawful for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction because of race, color, religion, sex, handicap, familial status, or national origin. (b) D efinition. — As used in this section, the term “residential real estate-related transaction” means any of the following:
you offer guidance and assistance throughout the process, you’ve violated the fair housing laws simply by making the comment.
Comparative Evidence You don’t have to intend to treat an applicant
any different than anyone else to violate the
Fair Housing Act and ECOA. The simple fact
that an applicant was treated differently can be evidence of discrimination.
Comparative evidence of disparate treatment
usually occurs when an applicant is neither
clearly well-qualified nor clearly unqualified
for a loan. Teetering on the brink, that person’s
application could go either way, and if you treat
(1) T he making or purchasing of loans or providing other financial assistance— (A) F or purchasing, constructing, improving, repairing, or maintaining a dwelling; or (B) S ecured by residential real estate. (2) T he selling, brokering, or appraising of residential real property.
him or her any differently than anyone else,
MARCH/APRIL 2017 13
SPECIAL FOCUS: FAIR HOUSING & LENDING
even unintentionally and without prejudice,
THE ACTS Equal Credit Opportunity Act Section 1691. Scope of prohibition (a) It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction— (1) o n the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) b ecause all or part of the applicant’s income derives from any public assistance program; or (3) b ecause the applicant has in good faith exercised any right under this chapter.
14 PRIVATE LENDER
you have violated fair lending laws.
For example, assume two applicants fail
applicant, who happens to be a member of a protected class, the second applicant could
likely prove comparative evidence of dispa-
to clearly qualify because of negative credit
rate treatment, regardless of your intentions
applicant and fail to do so for the second
cant encouragement through the process
issues. If you propose solutions to the first
or motivations. Even giving the first appli-
and not giving the second applicant the same
you need to do so for all applicants. In fact, it’s
Disparate impact
As a private lender, you’re not obligated to
detailing what assistance you will (and won’t)
have a fair and neutral policy in place, you
don’t clearly qualify for a loan. Have an attor-
through disparate impact. This occurs when
encouragement is a violation.
provide extra assistance or propose solutions as issues come up during the process, but to the extent that you do so for one applicant,
a good idea to have a written policy in place provide and how you will handle cases that ney review your policy and stick to it.
Even if you treat all applicants equally and
can violate the Fair Housing Act and ECOA you treat all applicants the same, but your
practices disproportionately affect people in
a protected class. For example, a policy to not
extend loans for an amount less than $100,000
for single-family homes may disproportionate-
ly exclude minorities and other applicants who have lower incomes and lower home values than the rest of the applicant pool.
However, it’s not enough to prove a disparity
exists for a protected class to be found in vio-
lation of the Fair Housing Act and ECOA. The court will consider whether the disparity is
justified because of a “business necessity,” such as profitability. If you can show your business can’t be profitable making loans for less than
$100,000, for example, the court may allow you to continue the practice.
Or not. Demonstrating a business necessity
may not be enough to get you off the hook for a
violating fair housing laws if the court determines an alternative policy or practice could avoid the
adverse effects to your business while at the same time have a less discriminatory effect.
Consequences Applicants who suspect they may not have
been treated fairly are encouraged by the De-
partment of Housing and Urban to file a claim with HUD or with a fair housing agency. That agency will refer the case to the Office of Fair Housing and Equal Opportunity (FHEO) for
investigation. If the FHEO finds discrimination has occurred, you’ll have the opportunity to
work with the other party to come to a voluntary resolution. In cases where a settlement can’t be reached, the case will go to court.
Either way, the penalties can be quite steep. MARCH/APRIL 2017 15
SPECIAL FOCUS: FAIR HOUSING & LENDING
Target Redlining
In recent years, the Consumer Financial Protection Bureau has been focusing on the unfair lending practices of finance companies and credit card lenders. For 2017, however, the bureau announced it is redirecting its resources to investing, mortgage and student loan servicing, small business lending, and redlining. Redlining is the practice of providing unequal access to credit or unequal credit terms based on where the applicant lives or the location of the home for which the mortgage is sought. The term comes from a time when lenders would draw a red line around neighborhoods they wanted to avoid, typically ones with a high concentration of minorities, due to a perceived higher risk. To avoid becoming the target of the bureau’s new focus, make sure you are lending throughout the entire market, including all neighborhoods.
Bank of America, which purchased Country-
wide Home Loans in 2008, had to pay $335 mil-
lion for discriminatory subprime loans Countrywide made to Hispanics and African-Americans in the run-up to the housing crisis.
As a private lender, you probably won’t face
a $335 million penalty, but the amount awarded against you for fair lending violations could severely cripple your business. ■ ABOUT THE AUTHOR Teresa Bitler is an Arizona-based freelance contributor to Private Lender magazine. Contact her at teresa@teresabitler.com
16 PRIVATE LENDER
HELPFUL RESOURCES: Department of Justice (Fair Housing Act) Section 805 https://www.justice.gov/crt/fair-housing-act-2 Department of Justice (Equal Credit Opportunity Act) https://www.justice.gov/crt/ equal-credit-opportunity-act-3 U.S. Department of Housing and Urban Development https://portal.hud.gov/hudportal/ HUD?src=/program_offices/fair_housing_equal_opp/FHLaws https://portal.hud.gov/hudportal/ HUD?src=/program_offices/fair_housing_equal_opp/FHLaws/yourrights
https://www.fdic.gov/regulations/ compliance/manual/4/IV-1.1.pdf https://www.occ.treas.gov/topics/ consumer-protection/fair-lending/ index-fair-lending.html https://www.fdic.gov/regulations/ compliance/manual/4/IV-1.1.pdf https://portal.hud.gov/hudportal/ documents/huddoc?id=Fair_Lending_Guide.pdf https://www.consumerfinance.gov/ about-us/blog/fair-lending-priorities-new-year/
http://www.civilrights.org/fairhousing/laws/
http://www.adamsandreese.com/ en-US/cfpb-outlines-new-fair-lending-enforcement-priorities-for-2017-01-13-2017/
https://www.occ.treas.gov/topics/ consumer-protection/fair-lending/ index-fair-lending.html
https://www.propublica.org/article/ disparate-impact-and-fair-housingseven-cases-you-should-know
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SPECIAL FOCUS: FAIR HOUSING & LENDING
18 PRIVATE LENDER
Deeper Meaning Today’s concept of fair housing goes beyond Title VIII of the Civil Rights Act of 1968. by Andy Williams
T
he Fair Housing Act (Title VIII of the Civil Rights Act of 1968) originally
introduced meaningful federal enforcement
of laws guaranteeing that no person could be denied the ability to buy or rent a dwelling
because of race, color, religion, sex, familial status or national origin.
Now the concept of fair housing has
even broader reach, thanks in large part
to institutional investors who entered the market at a time of distress and lack of capital available to smaller investment
firms. These institutions’ investing over $25 million a week to purchase, renovate and
reposition these distressed assets through
a buy-and-hold strategy was revolutionary
for the fair housing industry. Looking back at why Invitation Homes, Colony Homes, Waypoint Homes and American Homes
for Rent entered this space and aggregated thousands of units, exiting with IPOs and
successful securitizations, we see how their existence created a fairer housing market –
specifically for smaller, “mom and pop” real estate investing businesses.
Today, housing is a big business – and
business is good. As professional real estate investors, my team and I go into multiple
markets to identify opportunities, analyze MARCH/APRIL 2017 19
SPECIAL FOCUS: FAIR HOUSING & LENDING
market conditions and use our investment
preservation for the Wall Street funds.
to provide the operators access to growth
institutional investors having pivoted from
about the federal government applying
confidence, properly capitalized to create
and medium-sized investors who remain in
the broader concept of fairness. As private
capital to turn a profit – simply put. With
aggregation to real estate finance, the small this space have access to capital, systems,
This conversation on Fair Housing is not
rules and regulations, but instead it is about lenders in this Association, we have a fidu-
processes and people that enable them to
ciary duty to the investors – the women and
business while maintaining yield and capital
markets – to continue to innovate ourselves
grow, develop and scale their real estate
20 PRIVATE LENDER
men with boots on the ground in their local
capital so they can enter the market with
the change that we all want to see. Whether we are in Fort Worth, Texas; San Francisco,
California; the inner city of LA; Jacksonville,
Florida; or St. Louis, Missouri, there’s opportunity for transacting.
It’s now a fact that the presently active
Wall Street firms have gained an appetite
societal change and empowerment along
to be traded on the securitization market.
finance tactics, collaborating with Fannie
American Association of Private Lenders, we
And we are creating a fair housing market
for consistent returns through debt leverage Mae, Goldman Sachs and Wells Fargo. What
with positive returns. As members of the
stand with a greater purpose in today’s mar-
is unique and fair about this approach is
ket: to make capital more accessible, through
significantly for the actual operators on
yond an operator’s balance sheet to empower
that it has driven the cost of capital down the ground and provided more options for
the local private and regional lenders. The
recent IPO of Blackstone’s Invitation Homes
the mom and pop operator to grow into an
redevelopment and revitalization, while making a solid return. That’s fair. ■
established business.
We all are creating a better, fair market,
of Jordan Capitals assets shows that this is
managing a pool of investor capital targeting
bringing fair and balanced opportunity to all parties involved in this asset class.
It is extremely appropriate now to capi-
talize on the housing market and also create
distressed, discounted properties below re-
placement cost, giving them access to capital
whether you are a private investor with
a long play – not a short one – in this space,
to empower the smaller operators to buy
manageable rates, extending the leverage be-
and Blackstone’s B2R merger with Finance of America and simultaneous acquisition
We are capitalizing to create change.
$50,000 to $5 million to place; a small team consistent returns by providing capital to
an operator in this space; or an institutional investor leveraging warehouse lines and
creating spreads off a LIBOR to create mar-
ket-ready opportunities and debt instruments
WORKING FOR INVESTORS. Safeguarding YOUR Financial Interests.
to build a business that adds value and forces
ABOUT THE AUTHOR Andy Williams is founder of Recon Realty, whose mission is to provide a platform for post-9/11 service personnel to use the real estate industry as a viable option for transition to civilian life. As a veteran-focused residential redevelopment firm, Recon Realty is deeply rooted in tactics and operational strategy, specializing in analyzing markets, identifying opportunities and acquiring real estate in growth markets.
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MARCH/APRIL 2017 21
LE
GHT I L E M I L NDER
:
gs— n i h t y n a d at m e h s i l p m s acco a few— i i e c m a r a e n G o t Christina , media, fashion, ing just halfway. yth law n a o d t ’ n oes and she d
22 PRIVATE LENDER
MARCH/APRIL 2017 23
LENDER LIMELIGHT
WITH CHRISTINA GERACI
Private Lender: Let’s start with some
PL: What is your position at Geraci? What
background on the company you work for:
does your position entail? How long have
When was the company founded, what
you been in your role? Have you ever held
services does Geraci offer, where are your
any other position?
offices located, special milestones, mission statement etc.
CG: As a founding partner, I did everything in the beginning, even staining desks and
Christina Geraci: My partner and I started the
setting up computers. Within the first year,
office in Irvine. I had to moonlight at my prior
attorney. The following year, we added three
enough money) to survive. By the end of De-
members. By our fourth year, we were up to
law firm in July 2007 out of a 167-square foot
we had added a full-time paralegal and third
law firm until we were busy enough (i.e. making
more attorneys and two administrative staff
cember 2007, I had tendered my resignation, and
10 attorneys and a full staff.
began working full-time at Geraci Law.
Our firm has naturally progressed and
Growth is wonderful and painful. I learned
and accepted quickly that I needed help. I
blossomed into a full-service one-stop
was good at some things, great at some things
beautiful Southern Orange County in sunny
and I split up the responsibilities of the firm.
successfully launched Geraci Consulting,
and Litigation Chair. I remained in those
line and magazine. I know it is anything but
of Litigation Chair to a very seasoned trial
sulting and media firm, but we are not your
My current position is managing share-
shop for private money lenders, located in
and terrible at others. My partner, Anthony,
California in the city of Irvine. Last year we
I was responsible for being the CFO, COO
and Geraci Media which hosts a conference
roles until 2016 when I handed over the role
typical for a law firm to bloom into a con-
attorney, Paul Sievers.
typical firm. In fact, we have been decreed
holder in charge of operations, which still
the “Un-Firm” by our people and clients.
encompasses the roles of CFO and COO for
value to our clients, which takes a lot of
on a much stronger overall leadership role.
company from ground zero, and successful-
resource for them.
Because we are in the same boat, we under-
have whatever they need to succeed.
business ones as well.
PL: Why did you choose your career path
We actively search out ways to provide
“thinking outside the box.” Starting a
ly running and growing it is challenging.
the Geraci entities, but also allows me to take We have a strong team, and I remain an open My only real job is to ensure my people
stand not only our clients’ legal issues, but We firmly believe that we exist to provide
peace of mind to our clients, whether that is
path you choose. and industry?
by preparing a securities offering, negotiating
CG: Oh boy, this is a tough one, because it is
suit, helping them raise capital, or educating
into law by my family; we have several attor-
a contract or deal, defending them in a law-
so personal. I guess you can say, I was pushed
them on the current trends in their business.
neys and a Judge in the family. I was raised to
they can turn to when they need assistance.
will empower you in any career path or life
We are a partner to our clients – someone
24 PRIVATE LENDER
believe that a law degree is invaluable and it
“If you know how to interpret the law you
won’t be taken advantage of, and you will always have a job.” – my mom, my dad, my grandma,
my grandpa, my aunts, my uncles, my cousins (you get the point) would say that all the time.
My dad was diagnosed with cancer when
he was very young. He knew he was not
going to be around when I was older, and
wanted to make sure I would be financial-
ly taken care of. He believed a law school
degree was that guarantee I promised him
before he passed away that I would go to law school and kept my promise.
PL: How does Geraci fit into the hard money or private lending world? CG: We are the hub of the private lending
world. Each spoke we build adds value to the
private lender. Everything from Originate
PL: Where do you see Geraci fitting into
Report magazine, which will be sent to over
the private lending industry in the future?
service companies, to Geraci Consulting,
CG: We will continue to offer cutting edge
clients. We are their partner in business,
lending conversation by providing our clients
strive to find solutions for our clients, and of-
ties for them to continue their success. Gera-
the solution in hand, we build it.
As attorneys and business oriented people
40,000 loan originators, private lenders and which finds investors for our mortgage fund and provide peace of mind to our clients. We ten provide several options. If we don’t have
education and dominate the private money
what they need as well as growth opportuni-
ci Consulting has taken on a life of its own.
MARCH/APRIL 2017 25
LENDER LIMELIGHT
WITH CHRISTINA GERACI
we often times found ourselves providing ad-
CG: I would say it is progressing slowly in
wanted to offer valuable services our clients
sexism is still accepted in our industry, espe-
al careers and contemplating following in
a positive direction. Unfortunately, blatant
your footsteps?
needed and Geraci Consulting was the final
cially by the veterans. Although, the younger
CG: People will assume you aren’t smart
company dedicated to teaching and advising
a bit, we still have a way to go. As this new
ed enough because you are a young woman.
in the industry taking on stronger leadership
degrading. But here’s another dose of reality:
vice that was outside of the legal realm. We
generation seems to have dulled sexism quite
enough, good enough, tough enough, educat-
generation takes over we are seeing women
Yes, it’s insulting, aggravatingly sexist and
roles. It is a great thing to see happening.
it’s going to happen again and again.
changed for women in finance? Is progress
PL: What advice would you give to other fe-
racism and sexism I encountered in my early
coming fast enough, in your opinion?
males just starting out in their profession-
piece of the puzzle. Now we have a whole
novice lenders to seasoned lenders on how to grow their business.
PL: How has the professional landscape
People could never imagine the amount of
years by male attorneys and, yes, even judges.
On A More Personal Note...
GETTING TO KNOW CHRISTINA GERACI
Gym or outdoors? Where do you seek solace when needed? Hot Yoga and the beach. So, both. How important do you think humor is in the workplace? Crucial. Without humor, it would be a dark world. At Geraci, we laugh together all day long. What are the essential tools of the trade for you? Internet. Smartphone. Wine. What are your favorite ways to reduce (or bypass) stress? Traveling and going on an adventure. I love exploring places all over the world. I am happiest when learning about new cultures and experiencing new things. We know how important family is for you, can you tell us about your kids?
26 PRIVATE LENDER
Raising three children and running my own business is challenging, but rewarding. They define me, guide me and will always come first. I have an 8-year-old boy who loves baseball, is in Cub Scouts and serve as liaison for his baseball league and his team mom! My 6-year-old daughter loves ballet and Girl Scouts, we share “girl time” with mani/pedi days. I love watching her girly side of her. My 15-month-old boy never stops! He is so happy and is a true pleasure to be around. Do you have a favorite quote that motivates you? “Know your ‘why’ “—why you get out of bed in the morning and why you do what you do. Practice self-awareness, and know it is not a soft science but disciplined practice that is necessary for you to be successful and achieve true freedom and true happiness.
Batgirl or Wonder Woman? If not either of those, do you have a female cartoon role model? Belle from “Beauty and the Beast.”. Favorite actor/actress? Why is that person your favorite? Gary Oldman. He is extremely talented and can play almost any role perfectly. If you changed your profession what would it be and why? I would be a professional opera singer. I am a mezzo-soprano. If I changed careers, I would do that instead. I love to sing. Finish this sentence, “Go forth and_____!” It can be anything! INSPIRE! What’s next for Christina Geraci? I can’t wait to find out! I have been having a blast so far.
I can’t tell you how many times I walked
a week. This is a great side project and brings
court reporter or attorney’s secretary. Once
I get to go to Fashion Week and rub elbows
into a deposition and was asked if I was the
in a nice little “passive” income stream. Plus,
Learning and growing is a lifelong quest. Never stop.
Surround yourself with an inner circle
with very interesting people.
that complements you. Where you are weak,
get me coffee—black, and let Ms. Palmer (my
through a friend of his. He knew I would be
most successful people are those who have
ery time I would say with a side smile “No. I’m
girly things. I love the whole eye-lash exten-
opposing counsel looked at me as I entered
the room, and he said “Oh good. Dear can you maiden name) know I’m here.” Each and ev-
My husband first heard of this opportunity
interested; I love fashion and makeup and
lead counsel Christina Palmer/Geraci” all the
sion concept and the financials made sense.
ber my name, alright, when we are done.”
Amazing Lash, I was hooked. She is a true
while thinking “Oh, you are going to rememEach time I endured prejudice it made
me stronger, it made me work harder, and encouraged me to win. I would not allow
anyone to tell me I could not do something
or was incapable. It only fueled my fire and
PL: Women seem to keep shattering the
through beauty and cosmetics. I knew I want-
those women? If so, why?
PL: What do you do to keep current in your
CG: I am an entrepreneur by nature. I’m
was and said, “Screw you. You have no power
as well as a plethora of legal periodicals. I
My advice - don’t sweat it. Go out, and do great
willing to give you a shot, recognize you can do.
glass ceiling. Do you feel you are one of
ed our own studio.
CG: I read Private Lender, of course! In all
things. The great things about those who are
with a team where every member has some-
artist and has such a passion for creating art
I did not “overcome” racism or sexism. I
over my actions.”
accident but a conscious decision to work thing unique to bring to the table.
career and on the lending side?
looked it in the face, recognized it for what it
a well-rounded, 360-degree view; it is not by
But, when I met Jessica Lee, the founder of
drive, when I heard racist or sexist com-
ments. It helped mold me into who I am.
have team members who make up for it. The
honesty, I read the legislative updates daily keep apprised of current business trends to help me grow as a business owner. I keep
striving and learning. You have to keep growing or you will end up dying.
addicted to the thrill of leading an idea into
a reality. It’s like a puzzle in my mind. I never bought into the whole corporate ladder
thing, so, I can’t say I broke the glass ceiling because I never fully played in that arena.
PL: Who have been some of the most influential people in your life? Any particular mentors who have inspired you to what you are doing today?
PL: As a woman in this industry what
PL: What are your guiding principles?
would you like to see changed if anything? CG: I would like to see more women in leadership roles. So many women take lower-lev-
CG: Know yourself, improve yourself and complement yourself.
Know who you truly are. Take the neces-
CG: My mother. She has always been my
advocate and voice. She told me I could do anything and I believed her.
My husband. He is a true visionary, and
el positions once they start a family.
sary “ongoing” time to self-reflect. Under-
encourages me through all my crazy ideas
PL: Do you have any passion projects you
Constantly ask yourself why you make par-
it, and celebrates with me when I succeed.
are working on or dream of working on? CG: I recently started a Lash Studio. It is
Amazing Lash Studio Monarch Beach in Dana Point, California. We do semi-permanent eyelash extensions and host a line of cosmetics. Our studio has a gorgeous ocean view. I am
lucky enough to mentor there one or two days
stand what drives you, what motivates you.
ticular decisions and what you expect to see happen. It sounds easy – but it is anything
and side trips. He challenges me when I need
PL: How do you maintain a healthy work/
but. You have to be diligent and honest with
life balance?
But the key to true growth and leadership is
CG: Balance? What is that? I realized a long
you do.
You do your best and hope you don’t screw up your kids too much. ■
yourself. It is sometimes a painful reality.
knowing who you are and why you do what
Continually find ways to improve yourself.
time ago there is no such thing as balance.
MARCH/APRIL 2017 27
28 PRIVATE LENDER
LEGAL
Fighting Fraud How SBA lenders can avoid False Claims Act violations. by Dennis Baranowski, Esq.
T
he U.S. Small Business Administration (SBA) provides loan programs
Although the SBA does not directly lend
money, it assists small businesses’ develop-
money ends up in the right hands, but some lenders have begun talking about under-
available at most banks and commercial
ment through guaranteeing loans made to
handed tactics from the government.
guaranteed. Each year, the administration
As of 2015, the SBA held more than $118 bil-
fraud, it has stepped up enforcement efforts,
to be increasing that amount for 2016. This
tice and Housing and Urban Development,
lending that are U.S. government-backed and guarantees billions in loans and assists thou-
sands of U.S. small businesses with obtaining financing that may otherwise not be available to them from traditional outlets.
them through the private lending markets.
lion in its investment portfolio and appeared amount of exposure rightly demands diligent oversight to ensure fraud is reduced and
While the SBA continues to struggle with
in conjunction with the Department of Justo target and prosecute program violators. The SBA has always utilized site visits to
MARCH/APRIL 2017 29
LEGAL
determine if a borrower is legitimate, but it
and contracts through regulatory enforce-
litigation. While the FCA was intended to identify
Department of Justice (DOJ) and HUD to
it can also be used to enforce violations of proce-
was not until recently that it began using the
ment actions. The FCA is used by both the
and prosecute fraud against the U.S. government,
and prosecute what SBA feels is fraudulent
pursue and recover damages from organi-
dures with regard to loans the SBA guarantees or
or loan purchases as part of their business.
after lenders, Realtors or other entities or organi-
False Claim Act (FCA) to find, investigate activity on the part of the lender.
Navigating the False Claims Act (FCA) Liability
zations that rely on government guarantees The agencies often use the law to prosecute
violators either through DOJ lawsuits, or qui
purchases. The Act allows the government to go zations tied to SBA lending activity.
tam relator suits.
How FCA is Applied to Violations
false claims of loss against the United States
against lenders in the same fashion it was used
ular lenders on notice for violations, includ-
making a false claim to the government or
the 2008 economic crisis. Small business lenders
HUD. For SBA Preferred Lenders providing
The FCA was originally enacted after
the Civil War to thwart profiteers making
government. It currently applies to anyone presenting false information affecting a
government claim. More recently, the law
has been applied to government programs 30 PRIVATE LENDER
Under the SBA, the FCA can be utilized
to go after government-sponsored lenders after
must contend with ramifications that fall under
the purview of the FCA, and make adjustments to
ensure they do not fall into traps that risk possible
The FCA can place both preferred and reg-
ing lenders offering loans under the FHA and Section 7(a) and CDC/504 loans, the requirement for vetting the viability of the small
business borrower falls squarely at the feet
of the organization and principals. Lenders must ensure they follow
FCA action taken against the firm. Legal advice will be paramount in
checks to make sure they are dealing with a legitimately qualified SBA
irreversible damage resulting from an FCA claim or inquiry.
SBA guidelines, as well as perform their internal set of due diligence business. Even a failure to provide borrower information to the SBA can become a cause for an action.
Both government and private persons can bring suit against a lender
based on FCA violations. The DOJ often prosecutes lenders under the
FCA, but it is not unheard of for former employees or customers to file
suit using arguments from the Act. However, the primary area of concern for SBA lenders should remain with adhering to agency guidelines.
The SBA regulations change from time to time, and as such a lender
must consistently adjust internal procedures to ensure meeting those
changes. It is also the responsibility of the lender to report any changes in income, qualifying requirements, or company financial issues to the
SBA during the application process. Any failure to report these changes can be construed by the SBA as an FCA violation.
How Lenders Can Avoid FCA Investigations
implementing an internal investigation and plan of action to prevent The best way to avoid an FCA investigation is not to put your
company into a position that presents a reason for the SBA or DOJ to come calling. Implementing a robust compliance program, internal or third-party auditing system, and accurate record keeping and re-
porting is paramount to ensuring you continue to operate according to SBA guidelines and regulations. ■ ABOUT THE AUTHOR Dennis Baranowski, Esq., is senior associate at Geraci Law Firm. Baranowski has extensive experience in helping banks, credit unions, mortgage funds, private lenders, brokers, developers and loan servicers navigate through complex transactions, including negotiation of terms, transaction review and drafting of documents. He also has experience in default-related legal services including foreclosure, bankruptcy, and loss mitigation, as well as lender compliance. Baranowski believes in dedicated, constant communication and providing swift, custom, effective and efficient solutions to client problems. He understands that his role is not to stand in the way of a transaction, but to be a trusted guide in all lending matters.
An alleged violation of the FCA made by a government entity is a
dangerous situation that requires immediate legal guidance. However,
a t n a l t A
there are steps that lenders can take to mitigate exposure to FCA viola-
Join us
tions and prevent attracting unwarranted FCA scrutiny.
Compliance: The best way to avoid undue scrutiny stemming from alleged violations is not to expose yourself in the first place. Ensure
that your company has the proper internal procedures in place to prop-
erly research and qualify small business customers. Create and provide
in
a comprehensive employee training program that details warning signs of potential violations. Perform periodic internal audits to enforce
compliance and adherence to Agency requirements for SBA loans.
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Education: Ensure company executives are well schooled on FCA
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violations and how to avoid them. Enlist the help of counsel to provide oversight and guidance about how corporate activity, or inactivity, can
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lead to an investigation. Hold regular board meetings to discuss possi-
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MARCH/APRIL 2017 31
ALTERNATIVE ANGLE
32 PRIVATE LENDER
Leading the Way Alternative lenders at the forefront as fintech transforms the way Americans borrow and invest. by Brian Fritton
A
dvances in technology continue to
change the way individuals and busi-
nesses access capital, and alternative lenders have been at the forefront as financial
technology innovation transforms the way Americans borrow and invest.
Using slick and mobile responsive web-
sites, alternative lenders connect potential
borrowers to accessible online applications
and then seamlessly analyze their creditworthiness and risk factors via robust algorithmic technology.
Even traditional lenders are embracing
innovative financial technology as businesses realize that this is the direction the world is
headed. Who hasn’t heard of Rocket Mortgage
— Quicken Loans’ reinvention of the mortgage experience? They offer approval of an online
loan application in about eight minutes, roughly the time it takes the space shuttle to reach orbit. Introduced in November 2015, Rocket
Mortgage funded more than $5 billion in loan
volume in the first three quarters of 2016, making it a Top 30 mortgage lender.
Alternative lenders have re-imagined the en-
tire mortgage market, tapping powerful fintech
MARCH/APRIL 2017 33
ALTERNATIVE ANGLE
to find new and better ways to reach borrowers
the strong growth of alternative lenders.
tive lenders enables credit decisions and un-
signed specifically to meet their needs.
lenders as they compete with the nation’s
it may take a more traditional financial
ternative lenders has been on the rise for
may have greater name recognition and bigger
and investors with a variety of products deIt’s working. The marketplace for al-
several years. U.S. online lenders more than tripled their lending volume between 2014
and 2015, from $11.7 billion to more than $36 billion, according to an April 2016 study by
Speed is a key differentiator for alternative
well-known banks and mortgage lenders who footprints but are strapped with old, legacy
technology systems that can be a significant expense and time commitment to upgrade. This rapid approval process has been a
the University of Chicago’s Polsky Center for
core benefit that alternative lenders have
University of Cambridge’s Centre for Alter-
are submitted online and there’s no brick-
Entrepreneurship and Innovation and the native Finance.
In 2015, the United States was listed as the
world’s second largest online alternative fi-
nance market behind Mainland China, according to the report. The United States had the
world’s highest total online alternative finance market when viewed as volume per capita.
U.S. marketplace lenders are poised to
reach $90 billion in originations by 2020, according to a 2016 U.S. Department of
Treasury report about the opportunities and challenges in online marketplace lending. For alternative lenders in the crowd-
funding space, Technavio predicts the
global crowdfunding industry will grow at a
compounded annual growth rate of nearly 27 percent through 2020.
Fintech, to be sure, has played a signifi-
cant role in this growth. As more customers migrate to digital channels, fintech has
drastically changed the way many businesses operate — from retail giants such as Amazon and Apple to traditional banks.
Speed: A Major Attraction It’s fairly common for online alternative
lenders to provide potential borrowers with a lending decision within days. The quick-
ness of these decisions is made possible by
financial technology and has contributed to 34 PRIVATE LENDER
promoted to attract customers. Applications and-mortar retail location or any handling of paper documents.
Algorithmic technology used by alterna-
derwriting to happen in days, not the weeks institution to act.
While speed is good for the consumer, it also
is good for the alternative lending platforms, as it is a core benefit to attract new customers.
Transparency of Platforms While providing transparency into the
risks and rewards of online portfolios is a
strength of alternative lenders, not all plat-
forms are created equal.
It’s important that borrowers and investors
look into an alternative lender’s transpar-
ency and make their own judgment call
borrower or a potential investment are
about whether they have all the information
sound, for example?
investment decision. Certainly, investors
lenders in the past three to four years, so some
adviser and legal counsel prior to making an
but investors, and borrowers should also seek
before taking out a loan.
check with regulators regarding compliance.
financial background may find it difficult to
for these evaluations. They’ll want to read
transparency, data quality and customer
disclosures, to make sure there exists a level
investor know whether the site’s algorithms
able. If you are going to be giving an online
they need to apply for a loan or to make an
There’s been a lot written on alternative
are encouraged to talk with their financial
sleuthing via Google is a good place to start
investment on an alternative lending site or
out references, expert advice and, of course,
Investors who have no real estate or
evaluate the sites for criteria such as speed, service. How does a potential borrower or
for evaluating financial data of a potential
New investors will need to take some time
the small print, such as the company’s legal
of transparency with which they are comfortlender sensitive financial data in the course
of a loan application, you’ll want transparen-
cy into the way the lender operates and how it protects personal financial data.
If you are applying for a loan — whether
from an alternative or traditional lender —
you’ll want easy-to-understand information about the loan’s terms, such as the interest
rate and fees. Everything should be transparent and understandable.
Great Customer Service At first blush, it would seem like brick-
and-mortar banking institutions might have
a leg up on customer service due to the abili-
ty to serve customers face to face, but there’s more here than meets the eye.
As many of us know, securing a real estate
investment loan – whether for a fix-and-flip,
rehab, or a straight purchase – can be painful and time-consuming. Just completing all the
documentation for application can take days,
while the appraisal and underwriting process can drag on for weeks, potentially yielding a disapproval, creating significant inefficiencies in your investment business.
The 24/7 access to online marketplace
lending portals is a big deal in today’s
tech-savvy world. Attempting to access a
lender during business hours is no longer an
issue, as alternative lenders allow a customer to access their site and file an application on any day and at any time that is convenient
for them, not just convenient to the lender.
The actual process, once a borrower is on an alternative lender’s website, is typically fully
web-based without the requirement to gather paper documents.
The availability of online alternative lend-
ers has created more opportunities for bor-
rowers, lenders and investors as geographical boundaries have melted away.
The fact that alternative lenders are exMARCH/APRIL 2017 35
ALTERNATIVE ANGLE
We expect the industry will continue to break new ground in innovation, technology, credit risk modeling, user experience and customer service as platforms respond to growing competitive pressures and increasing compliance demands from regulators.”
For decades, a person’s credit score has
azon and Authorize.net, along with relevant
be approved or not. Those with marginal
few of the potential data sources that help
huge role determining whether a loan would panding credit availability to borrowers who
from Intuit, QuickBooks, eBay, PayPal, Am-
been the one go-to guide that has played a
shipping data, and so on. These are just a
may not qualify for a traditional bank loan is
scores were often denied. After the financial
marketplace lenders.
closures were rampant, banks tightened
Conclusions
are continuing to evaluate their services to the
became, well, pretty darn difficult.
important component of current financial
Technology allows for subsequent loans to be
consider who is a good risk and who isn’t.
This speed can yield a far superior customer
the lending equation, big data has allowed
borrowers returning for their next loan.
ing at a much wider variety of information to
Big Data Pushes Alternative Lending to Forefront
is a good risk. Asset-based lenders providing
also an important customer-centric focus for Like traditional lenders, alternative lenders
customer in order to attract repeat business.
crisis, when times were tough and fore-
the hatches even more and getting a loan Now big data is changing the way lenders
determine a borrower’s risk profile.
Alternative lenders have become such an
society in the past handful of years that soon they may no longer be referred to as alter-
processed much faster and more efficiently.
While credit scores may not disappear from
native. Much of what they are doing now to
experience, increasing the chance of those
lenders to supplement credit scores by look-
quo. Speed, transparency, exceptional cus-
Big data has the potential to truly trans-
form lending in the United States, even for
help them determine if a potential borrower
gy will be the given, not the exception.
Fintech will continue to mature as the
alternative lending segment ages. Lenders
opposed to solely evaluating the borrower’s
balance that allows them to expertly evaluate
with the ARV/LTV of the project itself, as transactional history.
into their platforms.
ness lender Kabbage gathers information
36 PRIVATE LENDER
tomer service and innovative use of technolo-
real estate loans are often more concerned
traditional lenders, some of whom lag be-
hind in adopting robust financial technology
disrupt the status quo will become the status
Forbes notes that alternative small busi-
will evolve their smart algorithms to find the the risk level of potential borrowers and de-
cide whether it makes sense to extend a loan. “The growth and development of this
market is being influenced by broader technological and societal
changes, which suggest a structural rather than a cyclical change to
how finance is being provisioned,” said the Cambridge/University of Chicago report.
“We expect the industry will continue to break new ground in
innovation, technology, credit risk modeling, user experience and
customer service as platforms respond to growing competitive pressures and increasing compliance demands from regulators.”
Indeed, the many benefits of fintech as applied to the alternative
lending market are just being discovered. ■ ABOUT THE AUTHOR
Brian Fritton is Patch of Land’s Co-Founder and Chief Technology Officer. He oversees Patch of Land’s technology strategy, including development, infrastructure, information security and mobility across all aspects of the company’s proprietary software. Fritton has more than 10 years of technology leadership and implementation experience across a wide range of development languages, enterprise frameworks, UX/UI, API-centric products, service-oriented infrastructure and high-availability architecture. He has led teams in setting strategic product vision and execution in the search industry, online ad exchanges, billing and accounting, media and financial services. Fritton previously held a leading development role with one of the nation’s leading e-commerce solution providers, helping to plan and build applications for brands like Warner Music Group and Ghirardelli and also led the implementation of a large-scale API, billing and audit system for Info.com’s keyword marketing venture. He holds a B.S. degree in E-Business from DePaul University in Chicago.
MARCH/APRIL 2017 37
FINANCE
What’s Not to Like? The private lending space offers benefits to lenders and borrowers, alike. by Robert “Bobby” Montagne
T
he roots of private lending date back
Profitable and Scalable Investing
when wealthy landowners and feudal lords
Over the last several
thousands of years to Ancient Rome,
used their land and property to obtain collat-
years, there has been
Private lending has really come into its own
in private lending,
the Great Recession and the ensuing height-
be both profitable
Frank), traditional banks emerged bruised
ed basis with proper
otherwise necessary for entrepreneurial ven-
diligence—secure.
ways by non-traditional lenders, particularly
ever-improving tech-
Armed with market demand as well as the
of available data and
eralized loans. Fast forward to modern times.
extraordinary interest
since the economic crisis of 2008. Following
as it has proven to
ened regulatory environment (e.g., Dodd-
and—on a risk-adjust-
and gun-shy, resulting in a dearth of capital
underwriting and due
tures. That vacuum has been filled in many
Between the JOBS Act,
in the real estate sector.
nology and an influx
passage of the 2012 Jumpstart Our Business
transparency, private
to spark investments in small businesses, a
into a maturing and
seized opportunities through private place-
asset class. As a result,
lending, private REITs and so forth. Acceler-
firms and Silicon Valley techies have rushed to
resulted in availability of new capital to fix-
capital and investors a new method of achiev-
real estate investors alike.
has resulted in a lend/invest model that can be
Startups (JOBS) Act, which was designed
lending has evolved
number of new entrants have recognized and
more readily available
ments, peer-to-peer crowdfunding, direct
Wall Street investment
ated growth in the private lending space has
get into this space, offering borrowers access to
and-flippers, builders, developers and rental
ing healthy returns. This confluence of events
As a premier provider of hard money loans for
acquisitions, construction and renovation proj-
scaled and sustained across various platforms.
JOBS Act and Crowdfunding
for two decades in the development and, more
private lending space for several reasons. With
we like about the private lending space.
can now, for the first time, generally solicit
recently, private lending industries. Here’s what
38 PRIVATE LENDER
credited” and the issuers (lenders, in this case) take reasonable steps to verify that status. In
other words, this “506(c)” offering allows lenders to advertise investments in their funds or loans without the rigors of a public offering, resulting in wider access to retail accredited
investors at a fraction of the cost and regulato-
ects in the Washington, D.C., region, we at Walnut Street Finance feel privileged to have participated
private offerings, so long as investors are “ac-
The JOBS Act of 2012 revolutionized the
the passage of Title II of the JOBS Act, lenders
ry hurdles of a public offering.
Additionally, implementation of Title IV
of the JOBS Act, nicknamed “Regulation A+,” has resulted in the ability for lenders to raise
up to $50 million from the general public, i.e.,
both accredited and non-accredited investors.
under contract—easily and efficiently can be
SEC approval and ongoing reporting, the fees
ey in secured, first-lien real estate loans. The
some than traditional public offerings.
portal (or manager, as the case may be) essen-
Though a Regulation A+ offering does require and reporting requirements are less cumberThe above provisions, coupled with
crowdfunding portals and impressive
websites targeted directly to borrowers and retail investors, have created a remarkable internet footprint attracting peer-to-peer
investors in real estate. Said differently, local builders and developers (borrowers) with a project in mind—and perhaps a property
matched with investors seeking to place mon-
With the above tools at our disposal, we like
operating in this market, especially with the potential to scale and reach wide audienc-
borrowers and investors never meet, and the
es. In fact, Walnut Street Finance recently
tially acts as a clearinghouse. The portals also
allows us to advertise to the public.
provide liquidity to existing lenders by giving them one option for a secondary market,
launched a 506(c) private offering, which
where existing loans can be sold in whole or
Wall Street and Private Equity Validation
tors the ability to select their investments (as
Silicon Valley have entered the hard mon-
in part while simultaneously offering inves-
opposed to, say, REIT investments, which are selected by the trust manager).
Private equity firms from Wall Street to
ey arena in several ways, further validating
private lending as an asset class. For example, MARCH/APRIL 2017 39
FINANCE
Patch of Land and Asset Avenue have become
value. Entrepreneurs with some skills and
and each has raised millions of dollars from
a profit by rehabbing old properties. In
household names in the hard money space,
venture capital investors. Big banks, including Goldman Sachs, J.P. Morgan Chase and Wells
Fargo, reportedly have begun extending credit lines to fix-and-flip lenders.
Importantly, secondary markets for hard
money loans are beginning to crystalize.
Industry leaders include Los Angeles-based
PeerStreet, which buys loans and crowdsources them to investors, and New York-based
Toorak Capital. Like Fannie Mae and Freddie Mac in the consumer space, these secondary market participants purchase “conforming” loans, thereby increasing liquidity and effi-
ciency in the private lending market. Surely, another sign of a maturing space.
Social Responsibility The money may be hard, but it isn’t mean.
In fact, hard money lending promotes social responsibility in several ways: • First-lien investing is
the determination to work hard can turn other words, fixing-and-flipping is one
way to achieve the American dream, and that makes us feel good.
•W e like the idea that we are growing
America by helping small businesses
(contractors, builders, real estate investors, suppliers, vendors, inspectors and
even stagers) achieve success. When we grant a hard money loan, we see ripple
effects that strengthen the country’s employment picture.
Billions in Untapped Potential Before becoming a private money lender,
Walnut Street renovated and flipped nearly
200 row houses in Washington, D.C., neigh-
borhoods such as Petworth and Eckington.
For every property that we renovated or saw
being renovated, we saw many more
distressed properties on the same block, ripe for restoration. If
you multiply the thousands
used to rehabilitate
of row houses in DC that
dilapidated properties
need rehabbing by the
and thus revitalize
average sales price for each,
neighborhoods. Hard
money lenders are more willing than risk-averse
banks to make loans on prop-
the untapped market is in the
billions of dollars. After seeing
in Washington, D.C., and realizing that lack
munity, the economy and tax collectors.
investors, we decided to enter the private
• Human potential can be unleashed
of capital was holding back many real estate lending arena.
Decades of experience as a developer,
through hard money lending. Private
builder and equity owner give us unique skills
folks traditionally ignored by banks,
show borrowers how to avoid mistakes, how to
primarily on the basis of the property’s
to stay on time and within-budget. We have
lending provides a pathway forward for
and insights to help rehabbers succeed. We
as hard money loans are underwritten
choose vendors and suppliers wisely and how
40 PRIVATE LENDER
contacts, know the local players and under-
stand who has the ultimate power to make or
break your project. Walnut Street Finance also prides itself on honestly and transparency.
We do what we say we’re going to do. In real estate, we think that goes a long way.
And guess what? We have fun doing what
we do. For one thing, we get to wear a lot of hats. Our days are spent conducting comparative market analyses, pro formas and
risk assessments in the office, then traveling on-site to check out projects and meet many different types of people along the way. ■ ABOUT THE AUTHOR
first-hand this enormous potential
erties in marginal areas. The resulting
gentrification is good for the local com-
Over the last several years, there has been extraordinary interest in private lending, as it has proven to be both profitable and— on a risk-adjusted basis with proper underwriting and due diligence—secure.”
Bobby Montagne is a real estate entrepreneur with thirty years of experience in commercial and residential property development, finance and sales. After developing more than 1,200 residential units and 200,000 sq. ft. of commercial space in the Washington DC metro area, Bobby started flipping houses on a large scale. He renovated and sold more than 200 row houses in DC neighborhoods such as Petworth and Eckington, helping transform those neighborhoods. After seeing firsthand the potential of the fix and flip market in Washington DC, and realizing that lack of capital was holding back many real estate investors, he founded Walnut Street Finance, a private money lender, in 2016. He now funds renovation projects in DC, VA, MD and DE.
Jon Hornik, Partner
MEET THE NATION’S GO TO ATTORNEY FOR PRIVATE LENDERS. With over 20 years experience in the private lending industry, Jon Hornik has earned the respect of both borrowers and lenders alike. Mr. Hornik currently represents and advises many nationwide private lenders. His expertise includes: Closing private money deals Licensing requirements Usury Predatory lending Underwriting Structuring Private placements 732.409.1144 | www.lhrgb.com
MARCH/APRIL 2017 41
LEGISLATION
Is There a Doctor in the House? The outlook for federal housing under the Trump administration. by Jeffrey N. Levin
A
s the Trump administration embraces rapid change across many spheres
of government, it is the approach to Section 8 housing that has the potential to bring
opportunities for builders and the private finance industry. In this regard, it is par-
ticularly notable that President Trump Dr.
Ben Carson, who grew up in the inner city,
to head up the Department of Housing and
Urban Development. Carson, a surgeon who
comes to the position with no government or policy experience, has pledged to bring new
thinking and strategy to the department that oversees federal housing subsidies.
Last month Carson told The Washington
Post, “Having me as a federal bureaucrat
would be like a fish out of water, quite frankly.” Yet this fish out of water does have strong views when it comes to housing. Carson has
been a vocal critic of HUD’s Fair Housing rule, which requires local communities to assess
patterns of income and racial discrimination.
He criticized this rule as being like a “mandated social-engineering scheme.” Carson went on to say, “This is just an example of what
happens when we allow the government to
infiltrate every part of our lives. This is what you see in communist countries.” 42 PRIVATE LENDER
MARCH/APRIL 2017 43
LEGISLATION
The Role of HUD To understand the implications of possible
changes to subsidized housing policy, it’s use-
ful to understand just how large a role HUD
plays in the residential market. HUD is a $48 billion agency overseeing public housing
for low-income families. It manages federal activity under Section 8 of the Housing Act of 1937, which authorizes the payment of
rental housing assistance to private land-
lords on behalf of approximately 4.8 million
low-income households in the United States. The largest part of this section of the Act is
the Housing Choice Voucher Program, which pays a large portion of the rents and utilities of about 2.1 million households.
The Voucher Program provides “tenant-
based” rental assistance so a tenant can move from one unit of what is considered the least acceptable minimum housing quality to an-
other. It also allows individuals to apply their monthly voucher toward the purchase of a home, with an estimated $17 billion going
toward such purchases each year. Currently, the maximum voucher is $2,000 a month.
Section 8 also authorizes a variety of “proj-
ect-based” rental assistance programs, under which the owner reserves some or all of the
units in a building for low-income tenants, in return for a federal government guarantee to make up the difference between the tenant’s contribution and the rent in the owner’s
contract with the government. A tenant who
leaves a subsidized project will lose access to the project-based subsidy.
Thus, the main Section 8 program, the
Voucher Program, may be either “proj-
ect-based,” where its use is limited to a
specific apartment complex from a public housing agency (PHA), or “tenant-based,”
where the tenant is free to choose any suit-
able unit in the private sector and may reside 44 PRIVATE LENDER
anywhere in the United States (including
the FMR for a one-bedroom apartment in
8 program. Under the Voucher Program,
places it was less than $500.
Puerto Rico) where a PHA operates a Section individuals or families find and lease a unit
San Francisco was $1,522, while in many other A landlord does not necessarily have to
and pay a portion of the rent.
accept Section 8 tenants, although he or she
justed income for Section 8 housing. Adjusted
Depending on state laws, refusing to rent to
Most households pay 30 percent of their ad-
income is a household’s gross (total) income minus deductions for dependents under
18 years of age, full-time students, disabled persons or an elderly household member,
and certain disability assistance and medical expenses. The PHA pays the landlord the
remainder of the rent. Each year, the federal
government looks at the rents being charged for privately owned apartments in different
communities. The Fair Market Rents (FMRs) are amounts (rents plus utilities) for medi-
um-quality apartments of different sizes in a particular community. For example, in 2012
must meet the Fair Housing laws, regardless. a tenant solely for the reason that he or she has Section 8 may be illegal. On the other
hand, landlords can use a general means of disqualifying a tenant, for example based
on the applicant’s credit, criminal history,
past evictions, etc. Many turn down Section 8 tenants because HUD requirements –
inspections, ceilings placed on the amounts they may charge for rent and the judicial
challenges involved with evicting non-paying tenants – are considered too much hassle.
Landlords who do want to accept Section 8 tenants cannot charge more than a rea-
sonable rent and cannot accept payments outside the contract.
Although some landlords may not
embrace Section 8 tenants, others embrace them for the following reasons:
•T here is a large available pool of potential renters for Section 8.
• The PHA generally pays promptly for its share of the rent.
• Section 8 tenants have an incentive to
take good care of the property because
tenants can be kicked out of the program if they owe a previous landlord for any property damage.
Obama’s Fair Housing Rule With an ample supply of Section 8 renters
and landlords willing to lease to them, the
to The Daily Caller. In a meeting last summer
as an effective way to provide a minimum
ter, New York, Trump reportedly said that he
More recently, the former Obama administra-
communities. Astorino later told reporters
HUD Voucher Program thrived for decades quality of housing for millions of people.
tion made changes to the Voucher Program by establishing controversial new rules, which drew attention from critics and fans alike.
In 2015, HUD released the new rule that
has been roundly criticized by Carson,
Trump and many other Republicans in
Congress. This new rule requires cities to analyze racial and financial segregation
among their residents. In addition, Obama’s
solicitor general filed an amicus brief on the side of Fair-Housing advocates in Texas Department of Community Affairs v. Inclusive
with Rob Astorino, a politician in Westches-
thought the rule took away the rights of local that Trump said that the rule “would not continue under the Trump administration.”
The new administration can take a few differ-
ent tacks to eliminate or nullify the 2015 rule. On the one hand, Carson can work with Congress to rescind the rule in its entirety. On the other
hand, the administration and Congress can simply not provide funding for HUD to continue
adding the staff necessary to administer the rule and monitor the progress of communities in evaluating their housing stock.
Also, the executive branch could decide
Communities, a landmark Supreme Court
to stealthily reduce enforcement of the Fair
Obama administration proposed changes to
HUD actions and through the Department
case about the Fair Housing Act. Further, the the longstanding Section 8 housing-voucher program to provide more money for the vouchers for low-income families who are
living in higher-cost areas, the so-called 2015 rule to “affirmatively further fair housing.” Under the 2015 rule, cities are required to
assess whether housing in their communities is racially segregated and then release
the results of that assessment every three to five years. Urban leaders are encouraged,
through financial incentives, to set desegregation goals, establish new low-income
housing in integrated neighborhoods and track their progress on those goals.
The rule was widely panned by many
Housing Act more generally, both through of Justice. For example, HUD now has the
ability to revoke funding from communities that it determines are perpetuating segre-
gation. This happened in Beaumont, Texas, after state and federal leaders agreed that
the neighborhood the city had chosen for a
new public-housing complex was excessively segregated. HUD refused to provide the expected funding for the project and told
city leaders it could get the money only if the new housing complex was built in a more
integrated neighborhood. Under Carson, the decision can be made to simply not pursue any such enforcement activities.
Alternately, the Trump administration
conservatives, who saw it as government
may also “pocket veto” Fair Housing enforce-
new rule is to empower federal bureaucrats
Department not to spend the resources on
overreach. “The explicit purpose of HUD’s
to dictate where a community’s low-income residents will live,” Sen. Mike Lee, R-Utah,
said on the Senate floor. President Trump has signaled his dislike of the rule too, according
ment activity simply by directing the Justice
civil rights housing and lending enforcement. Between 2012 and 2015, for example, the Civil Rights Division of the Justice Department
filed more than 100 lawsuits to combat housMARCH/APRIL 2017 45
LEGISLATION
ing and lending discrimination. The Justice
has proposed could mean changes in the Low
that use federal funds, for example under
Sessions may choose not to prosecute so
is currently responsible for most affordable
risk. Even state- and municipal-sponsored
Department under incoming Secretary Jeff many Fair Housing lawsuits.
Other signature Obama housing efforts will
likely be eliminated or replaced by Carson. These include the Choice Neigh-
borhoods initiative, a major
program started in 2010. Choice expands on
Hope VI, a longtime
Income Housing Tax Credit program, which housing built in the United States.
Furthermore, Congress may implement
deep funding cuts that would put many
other programs at risk of being functionally
“de-funded.” That’s because when President Obama signed the Budget Control Act of 2011, ending the recurring fight over the
country’s debt limit, he put in place spend-
HUD program from
ing caps on federal funding for defense and
to redevelop distressed
generally signaled a desire to protect defense
the 1990s, and seeks
housing projects and
the neighborhoods around
them. Since 2010, this initiative
has given out annual grants to neighborhoods and cities. Changes under the Trump administration may include more focus on privatizing public housing, and enrolling real-estate developers to take responsibility for revitalizing the neighborhoods around housing
non-defense programs. President Trump has programs while lowering spending caps for
non-defense programs. He also wants to cut non-defense spending by 1 percent a year
for the next 10 years, which could put HUD programs at risk of widespread budgetary problems. Spending cuts could lead to
fewer Section 8 vouchers, for which there
are already very long wait-lists around the
nation, as well as lower overall spending on
complexes. This may represent an important
public-housing complexes.
developers in the coming years.
Rapid Changes Ahead?
Congress: HUD on the Chopping Block?
construction and development sectors need
new stream of projects for private lenders and
The biggest changes to HUD may not even
come from incoming Secretary Carson. While he is skeptical about many of the HUD initia-
tives, his admitted lack of experience running a federal agency might create conditions
where the seasoned department bureaucrats under his command maintain the status quo
for better or worse. Rather, the big change to HUD may come from President Trump and the Republican Congress, which are both
skeptical about federal funding for programs that they think are better run by the private
sector. Reforming the tax code as Paul Ryan 46 PRIVATE LENDER
Private lenders and participants in the
to be vigilant about the changes, if any, that are around the bend for HUD. For projects with any significant degree of low-income
housing stock, there will be an increased risk profile if federal subsidies for housing are
reduced or eliminated. Even if a project does not involve Section 8 funding, the possible sizeable reductions in federal vouchers
would shrink demand for rental units as
many families are priced out of the market. And with reduced demand, market prices could tumble precipitously.
More complicated projects involving rede-
velopment of large tracts or neighborhoods
the Choice Neighborhoods program, are at projects may run into budget problems if re-
duced funding by the federal government in housing has a knock-on effect downstream. Keep in mind the famous quote from the
ancient writer Sun Tzu: “In the midst of
chaos, there is also opportunity.” For private lenders, there may be an increase in deal
flow in cases where federal funding is pulled away from projects that are otherwise quite viable. The reduction in Section 8 housing vouchers may result in new buildings or
whole neighborhoods being suitable for
redevelopment at higher target prices. And
landlords relying on HUD subsidies may find themselves either borrowing to improve the
marketability of their rental units, or putting them up for sale to cash buyers. Combine
the broader context of deregulation under
the Trump administration and the Republican Congress; the growing concern that the
commercial market may be a bubble ready to burst; and the likely changes to HUD under Dr. Carson’s surgical scalpel, and you have
a mix of factors that will make the next few years very, very interesting. ■
ABOUT THE AUTHOR Jeffrey N. Levin is the founder and president of Specialty Lending Group and Pinewood Financial, which together provide a full suite of boutique private real estate lending services in the Greater Washington, D.C., area. Prior to launching SLG, between 1993 and 2007, Levin was a cofounder and CEO of iWantaLowRate.com and a cofounder and president of Monument Mortgage. Levin is a recognized authority on real estate investing and, as such, is a frequent author, lecturer and panelist. He earned a BA degree from The American University in Washington, D.C., and lives on Capitol Hill with his wife, Dunniela, a Canadian trade lawyer, and his two sons, Jack and Charlie.
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47
LEGAL
5 Financing Tips
According to Bankrate.com, the average interest rate on a conventional 30-year
Here are five important ideas for financing your real estate investment transaction.
B
important as ever among consumers,
hovering around 2.50 percent. These rates are some of the lowest in the history of mortgage lending. If there was ever a better time to
by Nema Daghbandan, Esq. ecoming a homeowner is still as
home loan is 3.65 percent, with 15-year rates
finance real estate, we haven’t seen it. real estate investment transaction.
#1
ALTERNATIVE LENDING Portfolio loans are mortgages
that banks keep on their books, rather than
according to a study conducted by the online
How to Find Financing
of those surveyed dream of becoming a
world and have a clean credit report and low
Many credit unions or smaller banks offer
respondents expect it to become increasingly
bet for financing. Many of the large banks
properties. The loans are typically a little
with good credit. While investment money
counterparts but have easier qualifying terms.
still expect great rates that can increase your
tively fewer regulations associated with them
real estate site Trulia.com. In 2016, 75 percent homeowner one day, although 22 percent of harder to acquire a mortgage.
If you are one of the lucky Americans who
already own a home, yet is considering buying an investment property, pay attention to
these five important ideas for financing your 48 PRIVATE LENDER
If you are new to the real estate investment
selling on the secondary investment market.
debt ratios, a traditional bank is your best
these types of loans to investors with multiple
can offer low rates on mortgages to investors
higher priced than those from their big-bank
is typically a little more expensive, you can buying power.
Portfolio loans are useful, with compara-
and higher credit limits. You can find portfo-
There are important details to consider
when enlisting these types of high-LTV
loans. With a smaller down payment, your
loan balance will be higher, which means it is vital to determine your cash flow before considering it as a rental property.
#4
PRIVATE LENDING SOLUTIONS
Successful and savvy real estate investors
are always seeking to build up their portfo-
lio of properties. A financing strategy many of these investors utilize is private capital. Private lending can come from family or
friends, but there are also private money
lenders that can provide quick financing at comparative rates.
House fix-and-flippers typically use this
type of funding to snap up below-market priced rehab properties quickly. The rate
may be high, but if you plan to quickly turn
around and sell the property, you can cut the finance the entire property or the differ-
annual percentage rate by as much as half.
ment communities or asking your real estate
ence between the real estate value and the
network of lenders with which they work,
represent an excellent opportunity to get im-
#5
of documentation and regulatory headaches.
ers with quick access to the capital needed to
drawing up the mortgage docs.
an explosion in this market with the addition
lio lenders by reaching out to local invest-
agent. Real estate agents have an extensive
and many have nurtured those relationships specifically for the benefit of their clients.
#2
SELLER CARRYBACKS A “seller carryback” is a loan,
or portion of a loan, that the seller provides
loan available to the consumer. These loans
mediate financing with a minimum amount
A Realtor or escrow company can assist with
#3
LOW CAPITAL? PURSUE AN FHA 203K LOAN
PRIVATE MONEY POOLS Private lenders use funds pooled
from investors to provide real estate borrow-
finance their properties. There has also been of crowdfunding for real estate. According to
current regulations, accredited investors with
and holds. For real estate investors, seller
A property that is seller-financed means that
investors with little start-up capital. With a
crowdfunding endeavors.
the mortgage at a “market” interest rate
tor can finance the purchase balance, and
typically have a shorter term but are a great
balance. The only downside to 203k loans is
property in the near future.
ty for one year before he or she can rent it or
financing is one of the best options available.
FHA loans are a great strategy for fledgling
more than $1 million (excluding their home value) are eligible to participate in such
the seller has agreed to personally finance
down payment of only 3.5 percent, an inves-
with a specified down payment. These loans
repair costs can be calculated into the loan
Putting Your Retirement Funds to Work
option for investors who look to re-sell the
that the buyer will have to live in the proper-
can legally use those funds to finance an in-
The seller has the possibility to either
place it on the market.
If you own a Solo 401(k) or SEP IRA, you
vestment opportunity. For years, people have
been using their retirement funds to start a reMARCH/APRIL 2017 49
LEGAL
While it does require a fair bit of due diligence, investing into real estate is a great opportunity to take advantage of record-low mortgage rates and use them to make money. There are few better advantages in life than earning profits with “OPM” – Other People’s Money.”
free, non-recourse loans
• Ability to choose from a wide variety of investments Using a Solo 401(k) plan to invest in real
estate comes with a few restrictions. First, you tail business or invest in one, but you can also use it to finance your real estate investment.
Why Use Solo 401(k) for Property Investment? •A ccess to tax-free capital from the sale of investment property •Y ou have tax-deferral benefits associated with the capital • You can invest freely with the capital
• Financing of real estate projects with tax50 PRIVATE LENDER
funding sites and an extensive selection of
private money lenders from which to choose, access to capital should not be an issue, as
long as you are a responsible investor who
has done his or her homework in advance. ■
must put the capital gains or net income back
ABOUT THE AUTHOR
penses involved with the investment property
Nema Daghbandan’s practice encompasses all facets of real estate transactions representing lenders and brokers, including loan documents for commercial, residential, construction, multi-family, servicing agreements, spread agreements, assignments (of all types), leases, lien releases, procurement agreements, intercreditor agreements and subordination agreements throughout the country. He also leads the firm’s nonjudicial foreclosure practice and advises clients on all default related matters. He has closed hundreds of millions of dollars in loans throughout the country.
into your 401(k) plan. Second, all costs and ex-
should originate from the retirement account. While it does require a fair bit of due dili-
gence, investing into real estate is a great oppor-
tunity to take advantage of record-low mortgage rates and use them to make money. There are
few better advantages in life than earning profits with “OPM” – Other People’s Money.
With the popularity of real estate crowd-
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www.imn.org/landeast17 Call: 1-212-901-0542 | Email: amelvin@imn.org MARCH/APRIL 2017 51
BUSINESS STRATEGY
Pass or Fail? Develop and implement qualifying criteria to limit risk to your lending business. by Mike Hanna The Challenge A new lender in the hard money business
often can find it confusing to qualify a bor-
rower correctly. What adds more risk to the
picture is when your borrower also is new to
tax returns, no W-2’s, no problem!” Some
to understand. Most of the time these forms
as opposed to hard money financing.
create an application that can be completed
lender ads look like they are selling used cars Whether this is some kind of bait-and-
mation for determining creditworthiness and
gence, you don’t want to emulate anything
as well as understanding the applicant’s
writing loans with no borrower due dili-
you as the lender, as well as for your bor-
they are doing! If they are getting more
rower. I therefore encourage you to do your due diligence on everyone who applies for financing. It’s so much easier today than it
business than you, don’t worry. It’s not the business you want.
These lax lending practices will eventually
has ever been. Checking an applicant’s credit,
catch up to them and they will be chasing
background is something you can easily
ultimately taking back deals they don’t want,
bankruptcy history, and civil and criminal
accomplish online. The problem is most new lenders don’t do it.
This is not intended to pick on anyone
here or incite any panic for new lenders. In fact, qualifying someone for a hard money
loan is confusing for many lenders, both with and without experience. Most lenders who haven’t worked in financial services before don’t know where to start, and many times are not running credit, verifying income, or doing background checks – Yikes! If
this sounds familiar, you need to put some
parameters in place and start implementing real due diligence.
Let Your Competitors Get Into Trouble It doesn’t matter what market you are in,
you are going to have competitive lenders advertise things like “no credit check, no
income verification, no bank statements, no 52 PRIVATE LENDER
online quickly and captures enough infor-
switch routine or they are actually under-
the game. It’s sort of like the blind leading
the blind, potentially creating a disaster for
are filled out incorrectly, so you may want to
down payments, sending demand letters, and because no one can operate like this for long.
Qualifying Philosophy Qualification criteria in the private lend-
ing world is all over the place. While many lenders gather similar information from
prospective borrowers, not everyone qualifies borrowers the same way.
You need to get enough information to
make you feel comfortable: that your borrowers can make their payments, under your rate and terms, with the ability to pay off their loans, without being under any duress.
Taking Applications If you are lending on single-family proper-
ty for any business purpose strategy (i.e., flip,
rental, or transaction-based deal), an application form like Fannie Mae Form 1003 can be
very difficult for most borrowers to complete, and also challenging for you as the lender
performing any required background checks, investing strategy.
Let’s look at a couple of different types of
qualifying processes.
Rental Qualification If your borrower is going to buy a rental
property, then his or her exit strategy is refi-
still be confident that their exit strategy can be successful.
Some Thoughts on Credit Reports Many lenders look at credit reports the
way they look at appraisals. They go to the
page with the score (or value in an appraisal)
nancing out of hard money and into a long-
Flipping Qualification
of loans, you may want to consider working
es, you are going to need to determine the
these applications for you and determine
on your loan program, and the maximum
dard) you may want to see what is causing
like a credit score of 650+, with enough
situational (i.e., divorce, medical situation,
term note. If you do not originate these types with some affiliate lenders who can analyze the creditworthiness of your borrower for a
conventional or conforming loan. Once they are approved for this type of long-term fi-
nancing, they can be automatically approved for your loan.
If you do this for your rental buyers,
you will make the process so much easier
on yourself, as you will not need to do any
detailed analysis on their applications, but
For borrowers who are going to flip hous-
qualifying criteria that works for you based loan-to-value you allow. Consider something cash in the bank to make at least 6 months’ worth of payments after closing (meaning, your borrower is not bringing all of his or
her available cash to closing on one transaction, with no money left in his or her bank account), and a debt-to-income ratio of no more than 50 percent.
and skip the details. However, there are other important aspects in addition to the score. If
a score is low (or below your minimum stan-
this before rejecting someone outright. If it’s identity theft, etc.), they may still qualify
based on other things in their application.
High income, low debt-to-income and a large amount of cash in the bank can help offset a
low credit score. Conversely, if this applicant doesn’t like paying the bills, that’s a com-
pletely different story, and one that would
MARCH/APRIL 2017 53
BUSINESS STRATEGY
warrant not being approved for financing.
comfortable originating a loan with her, as
or your attorney. When qualifying an entity,
Sample Scenario
as a borrower.
make up the entity, by having each of them
Take a look at the following scenario as
her credit score is not reflective of who she is She will not be the only applicant you get
you need to rely on the primary partners that complete an application so their individual creditworthiness can be verified.
an example. A client applies for a $200,000
like this. Many borrowers need private loans
ation with her health where she was injured
derwriting until their credit score improves.
an LLC, and two of them have good credit
goes, bad things sometimes happen to good
Qualifying Entities?
would remove the bad credit applicant from
ly and she was working on a payment plan
like a partnership or LLC. Although most of
partners qualify together. Combine the other
report was timely and her debt-to-income
you can perform a background check on them
to get a single debt-to-income ratio. If the
absolutely do so, or have someone do this for
would qualify. Also combine their individual
loan with a 600 credit score. She had a situ-
and owed back medical bills. As the saying
people. Her credit score dropped significantwith her creditor. Everything else on her
was only 20 percent. Her salary at work was
$180,000, and she had around $75,000 in the bank. In a situation like this, you should feel 54 PRIVATE LENDER
because they cannot get past traditional un-
For example, if you have three partners in
while the other one has bad credit, you
Many clients will borrow under an entity,
the qualification, and make the other two
these entities will not have established credit,
two partners’ income and debt payments
(for lawsuits, bankruptcies, etc.) and should
DTI is below your threshold, then the entity
you, such as the title company you are using
cash positions, if they are not already in the
entity’s bank account, to determine their total cash reserves.
well as employment gaps, can be a dead give-
away to someone who has been incarcerated. If you see this, run a background check.
Personal Guaranty
It’s amazing what you will find on some people,
while others can slip through the cracks, as the
Whether it’s an individual or an enti-
ty, always require a personal guaranty on
everyone in the loan. This allows you to have recourse against each one personally in the
event of a default. Your attorney can provide
you with the appropriate document you need for your lending business in your state.
data just isn’t there. It’s your decision whether you want to loan to a borrower who has a criminal
record. While a misdemeanor 10 years ago may not securities fraud certainly does, and don’t be surprised if you get one (or more) to apply!
to get any applicants who have a criminal
Yes, there are people out there who will
try to trick you and do something nefarious.
Therefore, run a criminal background check on your applicants as part of the qualifica-
tion process. Time gaps on credit reports, as
standing of what it takes to develop and
implement some qualifying criteria for your
lending business. If you stay disciplined with this for each and every borrower, you will
certainly limit your risk exposure and feel comfortable originating every loan. ■
disqualify someone, an applicant who committed
You may be thinking that you are not going
Background Checks
it is hoped you will have a better under-
record, but that is simply not true. Do a background check.
Conclusion By following what has been outlined here,
ABOUT THE AUTHOR Mike Hanna is a real estate investor, hard money lender, mentor, and public speaker. He has been an active real estate investor since 2002, and has been in the hard money business since 2005. Altogether, he has completed over 1000 transactions. He is the group leader of one of the premier real estate mastermind groups in all of North Texas. He is also the owner/principal of Investmark Mortgage, LLC, which is an award winning hard money lender with offices in North Texas and Central Texas.
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MARCH/APRIL 2017 55
MANAGE & LEAD
Truth or Consequences An employee’s lapse in ethical behavior—no matter how small it may seem— can have a compounding, negative effect on the entire workplace. by Chrissey Breault
T
hink you are a person of integrity and
that you bring the highest standards of
ethics to your workplace each day?
Despite hundreds of pages of policies,
56 PRIVATE LENDER
codes of ethics, codes of conduct, organiza-
Lapses in workplace ethics result from in-
tional values, and carefully defined work
appropriate officer behavior such as insider
in workplace ethics occur every day.
harassment, sexism and involvement in con-
environments and company cultures, lapses
stock trading, expense account fraud, sexual
from the company, it appears Hurd left
employees to practice principled workplace
standards of conduct.
policies that cover all employees.
because he violated the company’s expected The appointed interim CEO, until the
ethical decision-making results in restrictive Codes of conduct or business ethics exist
company found a permanent replacement for
to guide the expected behavior of honorable
and said, ‘Mark had failed to disclose a close
tiated in response to dishonorable behavior.
Hurd, asked employees “to remain ‘focused’ personal relationship he had with the con-
employees. But, these often also have been iniIn today’s workplace, potential charges of
tractor who constituted a conflict of interest,
unfair treatment, discrimination, favoritism
and misused company assets.’”
management discretion. The many suffer for
failed to maintain accurate expense reports
Unfortunately, Hurd is neither the first nor
only high-profile executive in recent years
whose downfall was caused by inappropriate
personal conduct. Such lapses in ethics occur in workplaces every day.
Violations may be spoken or unspoken,
published or unpublished, with or without a CEO title. Violations of the rules don’t nec-
essarily have to rise to the level of conflict of
and hostile work environment replace much the sins of the few and sometimes, even the
best employees get caught in the equal treatment trap. At best, time-off policies, to use
just one example, require organization time and energy – hundreds of hours of tracking and accounting.
Everyday Ethics Not all employees will understand the
interest or questionable expense accounting.
challenges experienced by Hurd and other
Lapses in Ethics Drives Policy Development
workplace ethics. Still, all employees have the
Sometimes, untrustworthy actions by
certain employees lead to the implementa-
tion of strict company policies. Consider, for
example, the debate over the effectiveness of a paid time-off (PTO) policy versus one that
divides available days between personal, sick
senior company executives in their practice of opportunity daily to prove the core and fiber of who they are as people. Their values, integrity,
beliefs and character speak loudly through the behavior in which they engage at work.
Lapses in the practice of workplace ethics
come in all sizes—large and small, far-reaching and close to home. Some ethical lapses
flicts of interest.
days and vacation time off.
to rise to such a level that would impact the
times exist is because a few employees may
ployees. Lapses in workplace ethics also can
tempts to offer sympathetic time-off for legit-
ing toilet paper, copy machines and lunch
the employer then feels compelled to limit
ics isn’t always obvious. Only you will ever
about individual employee situations and
lapse in ethics affects your essence as an
Lapses in workplace ethics do not need
The only reason strict PTO policies some-
workplace environment you provide for em-
have taken advantage of the employer’s at-
occur because of simple issues such involv-
imate life reasons. To address the situation,
signup lists.
management discretion and decision-making
case, Hewlett-Packard’s former CEO, Mark
instead institutes policies to govern all.
issues. Based on only the public statement
organizational policies. The failure of some
In a nationally important workplace ethics
Hurd, became entangled in workplace ethics
You can build a similar case for most
affect individual employees. Other ethical
lapses affect whole work groups, and in par-
ticularly shocking instances, such as, Hurd’s,
whole companies, leaving the stakeholders to suffer as a result.
Failure to practice everyday workplace eth-
know about the decision you made, but each individual, as an employee and as a human
being. Even the smallest lapse in workplace ethics diminishes the quality of the work-
MARCH/APRIL 2017 57
MANAGE & LEAD
place for all employees.
Examples of Lapses in Workplace Ethics Each failure to practice value-based work-
place ethics affects your self-image and what you stand for, far more than it affects your
co-workers. Still, the effect of your behavior on your fellow employees is real, tangible and unpredictable.
The following are examples of employees
failing to practice fundamental workplace
ethics. The solution? Change the behavior, of course. You may never have thought of these actions as problems with ethical behavior, but they are. And all of them affect your co-workers in negative ways.
•Y ou are using the company restroom
and use up the last roll of toilet paper,
or the last piece of paper towel. Without thought for the needs of the next em-
ployee, you go back to work rather than addressing the issue.
• You call in sick to your supervisor be-
cause it’s a beautiful day and you decide to go to the beach, or shopping, or…
58 PRIVATE LENDER
• You engage in an affair with a co-worker while married because no one at work
will ever know. You think you’re in love.
You think you can get away with it. Your
personal matters are your own business.
The affair will not impact other employ-
ees or the workplace.
• You place your dirty cup in the lunch-
room sink. With a guilty glance around
the room, you find no one watching and quickly leave the room.
• Your company sponsors events, activities or lunches. You sign up to attend and fail to show. Equally as disrespectful,
staff ’s tips are shared equally and you
withhold a portion of your tips from the common pot before the tips are divided.
• You take office supplies from work to use at home because, you justify, you often
engage in company work at home, or you worked extra hours this week and so on.
• You spend several hours a day using your work computer to shop, check out sports scores, pay bills, do online banking and
surf the web for the latest celebrity news headlines and political opinions.
• You use up the last paper in the commu-
you fail to sign up and show up anyway.
nal printer, and you fail to restock the
claim you took the appropriate action, so
employee who uses the printer.
You make the behavior worse when you someone else must have screwed up.
• You tell potential customers you are the vice president in charge of something.
When they seek out the company VP at
a trade show, you tell your boss the customers must have made a mistake. • You work in a restaurant, where wait
empty tray, leaving the task to the next
• You hoard supplies in your desk drawer
so you won’t run out while other employees go without supplies they need to do their work.
• You overhear a piece of juicy gossip
about another employee and then repeat it to other co-workers. Whether the gos-
sip is true or false is not the issue. • You tell a customer or potential custom-
the sole owner of a work product or results. There are a few signs that appear if your
truthfulness are also basic tenets in a person with integrity.
People who demonstrate integrity draw
er your product will perform an action
ethics are substandard. You make excuses,
others to them because they are trustworthy
didn’t check with an employee who does.
your conscience that chatters away in your
can be counted on to behave in honorable ways even when no one is watching. ■
when you don’t know if it will and you
• You allow a part that you know does not meet quality standards to leave your
work station and hope your supervisor or the quality inspector won’t notice.
• You claim credit for the work of another
employee, or you fail to give public credit
give yourself reasons, and that little voice of head tries to convince your ethical self that your lapse in workplace ethics is OK.
The short list provides examples of ways in
which employees fail to practice workplace ethics. It is not comprehensive, as there are hundreds of additional examples encountered by employees in workplaces daily.
A person who has integrity lives his or
to a co-worker’s contribution, when you
her values in relationships with co-workers,
a report or in any other way appear to be
trust are central. Acting with honor and
share results, make a presentation, turn in
and dependable. They are principled and
customers and stakeholders. Honesty and
ABOUT THE AUTHOR Chrissey Breault is a Pittsburgh native and hospitality major, Chrissey started a part-time photography and design business in 2009, while working full-time in local government communications. She is currently Director of Marketing and Education Services with the American Association of Private Lenders.
MARCH/APRIL 2017 59
INVESTOR PERSPECTIVE
Renter Nation How an investor can capitalize from Fannie Mae’s rubber stamp. by Abhi Golhar
W
hether you are a private lend-
er, new or seasoned real estate
operator, or real estate agent, this is import-
1. Buy single-family rentals and hold for the long-term, effectively
JANU AR Fanni e Mae Y 2017: will b anno collat ack $1 bill unces it e ral i z i ed by on in debt s i ng l e renta l hom es ow -family by Bl ned ackst one.
embracing the trend.
ant news. In my eyes, the government has
rubber-stamped that we are becoming more
of a rental nation. My co-host Lauren Taylor
and I discuss the implication of this move by
Fannie Mae at length on the Real Estate Deal Talk Podcast, Session 3.
How can we capitalize on this? Well, two
options come to mind: 60 PRIVATE LENDER
2. Buy single-family properties, make the necessary renovations and sell them to individual investors or institutional funds.
determined by its age, location and overall
condition. However, there are a few simple things that anyone can do to increase the
overall value of a home, especially if you’re in Let’s do a quick dive into Option 2. As we
already know, the value of a home is pre-
a pinch and see an opening to make a quick entry and exit on a deal.
Landscaping Let’s put ourselves in the shoes of a tenant. Exterior appear-
ance is a large part of what will influence a tenant’s first impression of the home he or
you can easily transform the outside of your
or trends that will make your home seem
your expenses.
ing to your potential buyers. Once you have
home yourself, further cutting down on
New Paint
she will occupy for the next several years.
Another inexpensive and easy
exterior appearance is too expensive to be
of the home you are selling is to give it a
a lot with simple landscaping. By putting
have paint colors that aren’t up to date with
Of course, completely renewing your home’s worth it for a rental. However, you can do
in mulched flower beds, evergreen shrubs or rock beds, you can drastically improve the exterior appearance of the home you are trying to sell at a relatively low cost.
Better yet, most landscaping projects do not require a specialized contractor. If you are willing to put in the time and some labor,
way to increase the sale value
completely new paint job. Many homes
modern trends, giving them an outdated
feel to investor buyers and ultimately, their renters. Luckily, this problem can be easily solved with a few gallons of paint, a few
hours of time and a very low material cost. Before painting, go online or visit a paint
supply store to get ideas about modern col-
more up-to-date and more visually appealdecided on a color scheme, simply apply
your new coats of paint as needed and be-
fore you know it your home will look much more modern. Painting is another job that most people can do themselves, so labor
cost is once again not necessarily a major
factor. Just be sure to be especially careful with trimming and edging, as you’ll want your new coat of paint to look crisp and fresh when you’re finished.
Minor Kitchen Renovations Most investor-buyers are willing
to overlook some aspects of a house
Contact Tom Schmidt at 785-889-1300 or thomas.schmidt@mainstartrust.com to discuss your IRA custody needs.
MARCH/APRIL 2017 61
INVESTOR PERSPECTIVE
being outdated, especially for rentals. A slightly
be able to do this type of renovation yourself. If
minor changes you may make, it is important
won’t unduly trouble most buyers. The kitchen,
care of it won’t be alarmingly high.
sults possible. Minor aesthetic improvements
By the way
buyers (especially buyers who are funds who
out-of-style bathroom vanity, for example,
however, could be a different matter. Because of the sheer amount of time most tenants spend
cooking, eating and even entertaining in their
kitchen and dining area, it’s important to put the
not, however, the cost to have a contractor take
Too many times I have seen investors
assume the roof, foundation and mechan-
property on the market with an updated kitch-
ical systems such as HVAC, electrical and
to be horribly expensive or complicated. Refin-
STOP! Don’t assume anything. One wrong
en. Fortunately, kitchen renovations don’t have ished cabinets, countertops, faucets and paint will take care of the aesthetic needs of most
kitchens without breaking the bank. If you plan to sell the property with appliances to make the deal more attractive to the buyer, you should
make sure that all of the kitchen appliances are modern and come with the most popular fea-
tures available. If you’re fairly handy, you should 62 PRIVATE LENDER
plumbing are in good, working condition.
move here, and it is the difference between a
higher budget for repairs or a quick sale. Get your inspections and work with a licensed
contractor to set a timeline and realistic budget to get the job done.
These are just a few of the many types of
small projects you will need to undertake to increase the value of a property. Whatever
to keep costs low while getting the best re-
can make the difference between lookers and care about long-term tenants), so make sure that you have the property you are selling fully ready before you begin showing it. ■ ABOUT THE AUTHOR Abhi Golhar is the host of “Real Estate Deal Talk” and Managing Partner of Summit & Crowne. Abhi uses a “valueadded” approach to invest in real estate renovation, new construction and development opportunities in the Southeast United States. He actively educates and works with investors to deploy market-driven strategies that yield success. He holds a B.S. in Electrical Engineering from the University of Michigan. You can find him on Twitter, Snapchat, and Instagram - @AbhiGolhar.
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MARCH/APRIL 2017 63
MANAGE & LEAD
The Good, the Bad and the Ugly Anyone can claim to be a leader, but the key question is: Will your team – and success for your business – follow? by Linda Hyde
G
ood leadership is like the light, perme-
fective managers coordinate tasks within their
and poor leadership is like the shadow, dark-
encourages idea sharing and discussion. They
ating into every aspect of the business;
ening many areas of the organization. What is the cause and effect of poor vs. good leadership? What impact will your business have
with a poor leader at the helm? How can good leadership impact results? What qualities do employees look for in a good leader?
Effective leadership is critical in virtu-
departments and promote an atmosphere that get employees aligned in the pursuit of shared goals. Poor management may result in more fragmented departments and work roles,
creating internal silos. This means that each
employee neglects the importance his or her
work plays in achieving overall company and departmental objectives.
ally any type of for-profit or service-based
organization. When company managers lack
the ability to provide clear direction, positive coaching, support and motivation for staff,
Low Morale Another possible consequence of poor
leadership can be employees feeling misdi-
the organizational culture and morale often
rected or uncertain about the company and
tive effects on the company and staff.
contributes to this issue. When overly critical
suffer. Poor leadership can have several nega-
Poor Leadership Breeds Failure Synergy Poor company and departmental leadership
also inhibits the development of synergy. Ef-
their jobs. Poor or lack of communication
managers demean or demoralize well-intentioned employees who make mistakes, the
resulting negative environment may cause them to shut down emotionally. This can
create cognitive gaps within the team, giving
the belief they only “like” and listen to the people who look and think just like them.
“You don’t lead by hitting people over the head—that’s assault, not leadership.” –Dwight Eisenhower Lack of Communication & Engagement It is important for employees to feel like
they have a voice and that it is being heard from the top down. Likewise, they want Source: https://www.barna.com/research/the-different-impact-of-good-and-bad-leadership/#
64 PRIVATE LENDER
to stay informed of decisions and activity
leadership can motivate and invigorate a company’s culture. Good leadership gives every-
one in the company the confidence that they are under the guidance of someone who is
credible and knowledgeable. Strong, focused
leadership inspires people to try new concepts and venture into unknown territories that will develop both their personal and professional skills. By giving the team proper guidance, you will gain their trust and loyalty.
How can a leader make a positive impact
on his/her team?
Diversify your team. Diverse teams feel less comfortable, and
that’s why they perform better. In numerous studies, diversity both inherent (e.g., race,
gender) and acquired (experience, cultural background) is associated with business
success. Although an idyllic atmosphere may
be difficult to achieve, employees nevertheless recognize the many strengths and talents that diversity brings to the workplace, and they
gain respect for their colleagues’ performance. Workplace diversity preserves the quality of
within the company. Too often, a poor leader is unable to communicate effectively, which means important information that needs to
be passed along instead falls on deaf ears or
may be missed completely. The same can be said when there is a lack of understanding
from the leader’s perspective. This all leads
to decreased engagement from staff, impacting the overall business and goals.
The Benefits of Good Leadership On the other end of the spectrum, good
Source: https://www.barna.com/research/the-different-impact-of-good-and-bad-leadership/#
MARCH/APRIL 2017 65
MANAGE & LEAD
employees’ relationships with their co-workers and their leaders.
Take off your rose-colored glasses. Many leaders have unrealistic thoughts
and expectations of what goes on within
their organization and what it looks like to be successful. Good leaders engage with their employees to set realistic expectations and
attainable goals for success together. Engage-
ment is an emotional commitment to the overall organization and its goals when leaders
take the time to forge an emotional bond with their employees. A leader should always have his or her finger on the pulse of the business through communication with the team.
Remove titles, positions and authority. Position, title and authority are often
confused with leadership. We often read
news reports that refer to anyone with a title as a “leader.” However, leadership is not
an actual position or title. Whether you’re
the president of a country or a chief execu-
tive officer, your title does not make you a
leader. All a title does is make you a senior
executive. Leadership happens when people allow you to influence their lives. It’s only
Source: https://www.barna.com/research/the-different-impact-of-good-andbad-leadership/#
when your influence causes people to work
going to make a difference, you will need to
in managing people. When you treat your
leader. Leadership is more about influence
improving your influence and relationship
for their performance, this will in turn
giving orders. Influence can be changed by
The bottom line is that all leaders lead in
toward a shared vision that you become a
sharpen your leadership skills. This means
and relationship than it is about control and
with all your employees.
perceptions, relationships and trust.
either a good direction or a bad direction, and
Heading Toward the Good End of the Spectrum
exceptionally good. Although this direction
The best leaders don’t lead from position.
Nor is leadership attained by exercising con-
trol over others.
Leadership is the empowerment of oneself
and others toward a shared vision. If you’re 66 PRIVATE LENDER
employees with respect and appreciation
give you the results you are looking for in your business. ■
the spectrum runs from exceptionally bad to
ABOUT THE AUTHOR
may not be understood or consciously chosen,
Linda Hyde is Executive Director of the American Association of Private Lenders, an association built on the principles of ethics, education and networking. The Kansas City native has more than 17 years of customer service experience, including 13 years in leadership positions. While you will not find her on Twitter, you can find her on LinkedIn networking with other professionals in the real estate industry.
quite fortunately, we are all human and we thus all have the power of choice.
We can consciously choose to adjust our
actions to always lead in the good direc-
tion to raise our performance and success
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Early Confirmed SFR Owners Speaking Include: Mark Wolf, CEO and Founder, AHV Communities
Eddie Wilson, President, Affinity Enterprise Group
Ron Mass, Managing Principal, Altimas Capital
Larry Arth, Founder and CEO, Equity Builders Group
Bob Kociecki, SVP Property Management and Construction, Altisource Inaas Arabi, Director, Property Management, Altisource Jay Byce, SVP of Real Estate Acquisitions, Altisource Josh Gehman, Senior Manager, Investments, Altisource Altaf “Alex” Hemani, CEO & President, ALNA Properties Ron Mass, Managing Principal, Almitas Capital John Knab, Managing Director, Americas Housing Alliance Antoine Gendre, President, Ameristar Groupe
Marshall Sklar, Co-Founder, Florida’s Best Realty Svcs Andrew Lester,COO, GILfund Capital Management Patrick Whelan, CEO, HavenBrook Homes Will Holly, Founder and CEO,Holly Nance David Lichtenger, Managing Partner, Intrepid Capital Investments Carl D. Bell, Co-Head of Investments, Invictus Capital Partners Bruce McNeilage, Managing Partner, Kinloch Partners Gideon Pfeffer, Managing Member, J&G Real Estate Partners LLC
Andrew Flahive, President – Single Family Equity, Amherst Holdings, LLC
Thibault Adrien CEO LaFayette Real Estate
Gashar Dixon, President, Anglestone Real Estate Venture Partners
Sharad Mehta, Member, Max Properties
Ned Grace, Partner, Ausmerica LLC Paul Birkett, Managing Member, Automation Finance LLC Eli Braha, Managing Member & CEO, Berkley Aquisitions LLC George Huang, Partner, Bridge Tower Partners Jackson Su, Partner, Bridge Tower Partners John Burley, Founder & CEO, Burley & Associates, Inc
Jay Caplan, LJ Capital Partners Eric Delgado, Director, MCM Capital John Keeton, Partner, Morningside Funding LLC Matt Sneyd, The Muve Group
Chad Carpenter, Chairman & CEO, Reven Housing REIT, Inc. Greg Coleman,Co-Founder & Managing Partner, Revest Asset Management Howard Steinberg, Co-Founder & Managing Partner, Revest Asset Management William Powers, President, RTO Property LLC Marc Pelletz, Principal Sarasota, 5 LLC & Relax Realty Group Lee Kearney, Lic. Real Estate Broker, Southeast Property Investments Network (SPIN) William Robison, Owner, Storybook Real Estate Richard Stone, President, Stone Family Office Michael Cook, COO,Street Lane Homes Abhi Golhar, Managing Partner, Summit & Crowne Joe Mueller, Head of Investment Acquisition, TANIS Group LLC Bruno Cluzel, CEO, Templestone LLC Sanjay Raghavaraju, CEO & President, 33 Holdings, LLC
Marco Santarelli, President & Founder, Norada Real Estate Investments;
Paul Turovsky, COO, TRAC Global
Stephen Mathew, Director - Trading & Acquisitions, NS Capital Management Engelo Rumora, Founder, Ohio Cashflow Brett Kersh, President, Palmetto
RJ Palano, Director of Acquisitions, Buy Cash Flow Properties
Danny Kattan, Director, PIA Group USA
Doug Smith, Portfolio Manager & COO, Castle Rock Capital Management
Wayne Snell, President, Asset Management, Platinum Ventures
Stuart Steinberg, Director Community, Partners Enterprises LP
Thad Meyer, CFO, Reven Housing REIT
Mark Bloom, Principal/Founder, NetWorth Realty
David Buttross, Owner, Buttross Properties
Ted Weinstein, VP-Acquisitions & Banking Relations, Castle Rock REO
Michael Soni, Senior Advisor, Reven Housing REIT, Inc.
Aaron Kuney, CEO, Piedmont Asset Management
Jack Krupey, Managing Director, PRP Advisors Ed Renwick, CEO, Raineth Housing Rob Helmick, President, Real Estate Solutions
Howard Cooper, CEO, Cooper Family Office
Kathy Fettke, Co-CEO, Real Wealth Network
Leonard Blangiardo, Principal, Domaine Realty Advisors
Tim Horvath, Director - Affilates & Properties, Real Wealth Network
Oscar Vasquez, Chief Operating Officer, Encore Capital Management
Ryan McFarland, Chief Operations Officer, REO Capital Group Missy McCall, CEO, Retire With Real Estate
Alberto Chocron, Chief Operating Officer, Transcendent Investment Management Randy Hagedorn, Senior Vice President, Tricon American Homes Darryl Lewis, Managing Director of Applied Residential & Trio, Trio Leasing Jesse Shemesh, Portfolio Manager, 1217 Realty John Halasz, Managing Director, US Home Aggregation Christopher Crippen, Managing Director, US Residential Asset Fund Dan Bathon, Co-Founder & CEO, VineBrook Homes, LLC Kurt Westfield, Managing Partner, WC Equity Group Adam Whitmire, Director of Acquisitions, The Whitmire Group, LLC Dan Zitofsky, President/CEO, Zitofsky Capital Management
Call: 1-212-901-0542 | Email: amelvin@imn.org | www.imn.org/sfr17MARCH/APRIL 2017 67
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