Frequently Asked Questions

1. What is a Private Mortgage?

A Private Mortgage is a security instrument for real estate loans. The specifics of the loan are detailed in a separate promissory note, and the private mortgage is recorded at the county recorder's office. The Private Mortgage serves legal notice to the world that the subject property is pledged to secure a loan. It also provides for a rapid method of foreclosure should a borrower default on a loan.

2. Why do we pay such high rates?

These loans are short-term bridge loans that are utilized to purchase real estate at a discount. It is not the cost of money that counts but the availability. Many of our properties are from motivated banks/lenders and/or private sellers in which we negotiate very low sales prices by executing accelerated closings.

A great example of this is commonly known as a pre-foreclosure "short-sale" where a bank accepts less than owed for the property in order to sell it quickly to avoid a lengthy foreclosure process or simply to remove any non-performing assets from their books. Using traditional mortgage companies takes 30 to 45 days and sometimes longer to fund these transactions. A real estate investor needs access to cash quickly to acquire these properties and is willing to pay more for the money if it can be allocated quickly. The cost of the money is less important than the speed at which it is available.

3. This seems risky, how am I sure that it is safe?

Your loan is secured by real property which has a market value of at least 130% of your loan and is comercially insured against any disasters. Since these properties are acquired at 75% or less of market value, the portion of your loan is much lower than the actual value of the property. And, since your money is placed in something which is actually appreciating in value over time, your security grows over the time that the property is held.
Compared to purchasing stocks which fluctuates in value daily and have the potential to completely lose value due to market conditions, we consider real estate a much more stable vehicle in which to earn a predictable higher yield!

4. What if the property value drops?

Keep in mind real estate is one of the most stable types of investments. Real estate values typically change according to cycles and most of the time these cycles can be anticipated, unlike the stock market where values shift on a daily basis. In addition, our lending opportunities are usually short-term, 6 months to 3 years. Kitsap county and the surrounding Seattle area have industries like Boeing and Microsoft that keep our unemployment ratings low and demand for housing high. This leads to consistent appreciation, even when other parts of the country are experiencing declining values.

5. What happens if the property is destroyed by fire or natural disaster?

An insurance policy for full coverage at market value is required on every property we purchase. The mortgage lender is named as the primary insured party, so proceeds from the insurance settlement are used to pay back the first mortgage. Additionally, since the mortgage amount is typically 75% or less than the property value, there is built-in equity to safeguard your loan.

6. How do I know that I can trust you?

The good news is it does not take a leap of faith and there is no guesswork involved here. We inform you on all of the following before you participate:

• The address of the property and complete legal description
• The terms of your loan including your fixed yield
• A complete copy of the appraised report and title report
• A professional Title or Escrow Company handles all closings
• The name of our attorney that will be handling the loan paperwork
• A clear exit strategy on how your principal will be used and paid back

Your transaction is completed through a third party title company and your name appears on the official loan documents. You will receive the following from our office about 1-2 weeks after the loan closes:

• Title Commitment with Title Insurance
• Hazard insurance naming you as the mortgagee
• Promissory note signed by the borrower (us)
• Deed of Trust First Mortgage (securing your loan to the property)

7. Why haven’t I heard about this type of program before now?

Traditional investment firms don't discuss these kinds of opportunities because they would lose your investments in their programs! Private Mortgages are not a mass produced investment so banks, stock brokers, and mutual fund companies don’t offer this type of specialized program. Private Mortgages are typically funded by private individuals and not brokerage companies.

8. What if I need to pull my money out of the loan early?

If you need to withdraw your funds early, we will attempt to find another individual to which we can assign your mortgage to replace your involvement. This process, however, can take 15 to 45 days to complete. And, unlike a bank CD, there is no penalty for early withdrawal, just a small filing fee required by the county. Just call us, and we’ll handle all of the details. However, you really shouldn’t make mortgage loans if you feel you will need to liquidate shortly.

9. Is this a mortgage pool?

No. Every lender has the opportunity to review each loan request before they decide to work with us. Additionally, only bonded escrow title companies handle lender funds. After funds are wired to the title company, you (or your IRA) receives a promissory note and first mortgage as collateral for the loan. One lender, one property, one Private Mortgage..

10. What would my CPA or attorney say about this?

We always recommend that you check with either your attorney and/or CPA before making any major financial decisions. We would also advise you to talk to with someone who is familiar with Private Mortgage Lending and has experience in lending on real estate.

11. Are there any hidden fees?

No. We pay all costs to process your loan and close on the property associated with your loan. Furthermore, since all of the property that is being offered for Private Mortgage is in our portfolio, there are no loan service fees.

12. How can I get started now as an Private Mortgage Lender?

Take the first step is to email or call us about current and upcoming Lending opportunities. Feel free to present other questions to us as well. We want you to feel confident about your lending decisions.

13. Which persons are a good fit for Private Mortgage Lending?

People who have money in other investments. Other investments are probably not earning a maximum return on your principal or making the maximum use of your time. Many people choose other types of investments, because they are not aware about other opportunities such as Private Mortgage investing.

People who have cash on hand. Build wealth using the banks money. Furthermore, some individuals have pulled equity dollars out their home and participated in programs like this, earning a 7% or more positive spread on interest. You can put your home equity dollars to work and cash-out the equity in your home, rather than leaving it dormant in your home, earning 7%! An excellent resource for learning more about equity repurposing is the book Equity Happens by By Robert Helms and Russell Gray. Click here for more info.

People who want lower maintenance. Diversify with private mortgage lending to earn at least 7% return with less risk and much fewer hassles. If you are tired with the constant monitoring and requirement of investing in the stock market you will be pleasantly surprised with private mortgage lending. Once you participate you won’t have to do any monitoring except collect your monthly interest checks.

14. Which individuals are NOT a good fit for Private Mortgage Investing?

People who are looking to get rich overnight. Private Mortgage Lending is not a get rich quick scheme. It is, however, an ideal way to consistently maximize your dollars over time at a lower risk offering you a healthy annual return and without the hassle of managing all the details.

People who can’t bear the thought of some risk. As we explained, your loan is protected by the collateral & the equity in property. However this opportunity, like most, is not totally risk-free. These financial instruments are NOT FDIC insured and in theory, could lose value.

People who are unable to commit to a minimum 12 month period. If you anticipate that you will need your cash within the next 12 months, we would encourage you to wait until the funds could be loaned and left untouched for that period of time.

15. Are these transactions subject to any SEC regulations?

Transactions for Private Mortgage Loans are exempt from Washington securities laws, RCW 21.20.320 as noted at http://apps.leg.wa.gov/RCW/default.aspx?cite=21.20.320.