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Your Private Money Broker Is Your Attorney
6 Apr 2009 | 3 Comments | posted by Corey Curwick | in Private Money
Many people cannot underestimate the value of a qualified broker when it comes to private or hard money loan requests. I always use the comparison between a good broker and a good attorney. The analogy is presenting a deal for funding to the lender compared with presenting a case to the judge and jury in the courtroom. If you were being tried for a felony and possibly facing jail time, would you go before the court and present your case without a good attorney?
I can’t tell you how many stories I’ve heard where a borrower tried to go before the lender (the judge & the jury) by him or herself and was denied the loan (found guilty). This being said, we have also funded many a loan (court case) by presenting it properly to our lender (the court).
Many times when borrowers are seeking private or hard money they are in a delicate situation. This is where a good broker plays a crucial role in getting a deal funded. A good broker understands all of the details of the loan request, including the strengths and weaknesses, and is able to present this to the lender in the best way possible.
A story that happened recently is about a client that needed a construction loan for a halfway completed condominium project. As his broker, we determined that private/hard money was his only alternative for completing the condo project. We queried his loan request to all of our lenders and luckily we were able to find one lender that was willing to stick his neck out and help our borrower finish his project.
Our lender gave us the initial terms sheet and our client tentatively agreed to the terms set forth by signing off on them. However, without consulting us first, the client decided to call the lender himself to see if he could negotiate the interest rate down. BIG MISTAKE.
In the course of the short phone call with our client, the lender began asking him questions about the project that were “delicate” questions, to say the least. These were certainly questions that we as the broker should have answered for our client. Back to the analogy of the court case, our lender heard some things that gave him a bad taste in his mouth. Several hours later, the lender called me back and said he was withdrawing the initial terms and had decided NOT to do the deal. GUILTY!
Because our client decided to go straight to the lender without our representation, he lost the terms that were on the table and as of today, his project is still sitting in limbo. This is a valuable lesson for all of us. Pick a good broker that’s been in the private/hard money lending game for a long time. This is your best chance for getting your deal funded (or winning your case!).
Posted by Corey Curwick on April 6, 2009
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This article was written by: Corey Curwick
3 Comments
Corey,
It is amazing how principals think they can do things a little bit better and start out on their own only to fail. I was amused and saddened when reading this story. But it happens all of the time. That is why your services are needed. Every principal who thinks they can save a buck ends up spending two and paying for that experience. Keep up the good work.
Jack
jack,
Thanks for your comment. I liked what you said lastly about ‘saving a buck’. This is another area where a decently qualified and ethical broker can really add value. A lot of clients goff at the broker fee but what they don’t realize is that a good broker will go to bat for them and negotiate both interest rate and points with the lender. A client without representation is naked in front of a lender and prone to being taken advantage of. Did that sound right? ha ha!
C
There were some very true things said regarding the “need” for a good money broker just as there is a great need for a good attorney in a criminal case. Since I have a background in criminal justice I can attest to that analogy. Since I am new to the commercial property investment game, I have to say a good money broker is an invaluable necessity. But here is the question for you, how is a new investor (like myself) going to really know 1-who is a good broker,2-whether or not to believe that person, 3-how to “check” these people out, 4-and in that process, decide who is going to be a good risk, especially when they both want money up front and there is no track record to speak of showing you that they know what they are doing? I am not saying they are all bad, but what about paying the “fee” on the back end out of the proceeds of the loan? The attorney I understand must get paid up front because good job or not, his client might still end up in prison, but in the money world, why not make the broker put his money where his mouth is and find the money and then charge accordingly? I understand and have also heard that brokers put work into getting a deal funded and then the borrower can just back out if they want, but not if there is an agreement that states, “if the broker finds a lender that is willing to get the terms that are acceptable to the borrower, they must perform.” I would think, like an attorney, the broker would ask a series of questions to make sure that they got what their client wanted and needed right?
Just a thought.
Rick