Archive for the ‘Private Lending Questions’ Category

I asked my attorney a seemingly simple question: “Is A Private Mortgage Note Considered a Security and Is It subject To the Same Scrutiny by the SEC and the State?”
Seems like a pretty straight forward question and should be a straight forward answer right? Not even close. My regular attorney said that he would research it and get back to me. He said that yes according to the SEC and the “Howey” Test (SEC v. W.J. Howey Co. 1946) it met the definition of a security and that because of this it was regulated by the SEC and the State Department of Securities.

He also passed me on to another attorney who was better informed about the SEC and she proceeded to tell me the same thing and that we needed to be registered in the states that required such registration. She taught me everything I needed to know about putting together Private Placement Memorandums and how to find private lenders legally. Considering that you cannot make general solicitations to find investors. She emphasized using proper disclosures and risk assessments correctly.  Basic “Cover Your Assets” disclosures for everything.

The end of last year my attorney decided to go “in-house” with a new startup company where she could take that company public. Great for her, not so good for me. Or was it?…

I spent the next couple of months looking for a new SEC attorney that could help us all out. So after finding and interviewing several I finally found one of the best in the Pacific Northwest. I made an appointment with him. Sent him a copy of my course Cracking the Private Lending Vault and proceeded to spend an afternoon and $5000 with him for consultation.

Here is where it gets tricky and it turns out that it was a very good thing for my other SEC attorney to have gone “in-house.”

My new SEC Attorney John said that even though the using the “Howey” test classified notes and debt as a security another test “Reves v Ernst & Young” (1990) further defined that a promissory note secured by real estate was not classified as a security and so therefore it was not subject to the SEC regulations as a security.

Great News right? Well maybe…

While that is the case without a couple of specific clauses written in specific ways the note could still be considered a security. Drat…

The two things are simple but not to be messed with. If you don’t have them in your promissory note then you could be in trouble when the state and federal regulators come knocking at your door.
I reveal both of them in the Cracking the Private Lending Vault course as well my complete promissory note that includes the proper clauses and disclaimers.

The one thing that John the SEC attorney said before we left was how impressed he was with the multistep marketing campaigns that I use to raise funds. Because they are designed with the SEC rules in mind he was blown away at how effective they were despite the regulations. It is a fine line but he was comfortable that it would withstand the scrutiny well.

Have a great weekend, go out and enjoy the fresh start of the new month!

I received an email from Tim Redding the other day. He bought a copy of my Private Lending Essentials CD set the about a week ago and just received them in the mail. Here is a copy of his email:

“Hey Paul, I got the CDs in the mail yesterday and I listened to the first two. I believe what you say about finding private lenders but I am having trouble getting my head wrapped around one thing. Why would someone want to lend money on real estate when the value of real estate is going down all over the country? How can I talk them into lending me money that is risky like that?”

Tim, thanks for sending in your question. I first want to address the underlying tone of the question okay? You seem to be thinking that all real estate is risky and that all real estate values are going down. I can see how you would be of that opinion based upon the overall negative attitude regarding the Economy and Real Estate in the news.

If you think this way then you will not be confident in your business or in the deal. That will show through to the potential lender as doubt and lack of confidence. You will not be successful finding lenders with this attitude.

First realize that real estate values are local not national. I know of specific areas that have increasing values right now this week in my target market. The increasing values have slowed down in these areas but not stopped inching upwards.

Another thing is that you cannot nor should you ever “Talk” anyone into anything. I explain the benefits and inform people what is in it for them. I let them determine whether or not they should invest based upon their own criteria and values.

I show them a professional credibility kit and a professional property package. The credibility kit shows them why work with me. The property package informs them of the pertinent deal information including the property value, loan to value and my intended exit strategy. It explains why this deal may be right for them.

You are really helping people by offering them the opportunity to earn a good rate of return on their money. If you look at it as an exercise in selling rather than assisting someone meet their goals then you are only looking at it from a selfish perspective and people won’t trust you.

I played racquetball with a friend the other day, he was planning on moving his IRAs over to a self-directed IRA last summer but he let it slide. I reminded him several times last summer but never pushed him. He was telling me that he lost several hundred thousand dollars last September and October.

Do you think he would have minded if I had been a little more aggressive in reminding him to switch to a self directed plan? Then he would have been a little ticked. But he would have been thanking me now. Instead he decided he can’t afford to take the money out of the market because he wants it to recover before he does.

Please remember that you are only helping them by getting their money working harder for them. By adjusting your attitude and mental thought you can do many people a lot of good. By working with them properly and utilizing the proper professionals you are the hero in today’s economic climate.

I have been talking to many investors over the past 8 to 12 months and they have shared many of their frustrations regarding Private Lenders. I want to hear more. Call me a glutton for punishment but the more I hear the better we can serve you.

Most of the frustrations have been along the lines of; how to find them or how to secure them. I am sure that there are many more out there that you can share. Let’s hear em. I will post my replys in each of the comments so take a look often.