With an California hard money loan, the payor needs the money. If he is coming into the private market and paying higher rates, it is because he has been rejected by or cannot go to the banks. I like paper because it can have a lower risk factor than any investment that I know. I am an equity investor. I know the property can pay me when the payor can’t. I do not want a loan turned down by the institutions unless there is enough equity that I would love to own the property and have the staying power to re-market it. As a hard money lender California, when I buy a discounted mortgage I am doing so because the seller of the note needs the money – not the payor. In addition, my yield is derived by buying the note at a discount, not because the payor is being charged usurious rates. Which brings up another important point!
As a hard money lender California, if you are loaning money at high rates you may be in violation of your local state usury laws. “Usury” is charging more interest than is allowed by law. These laws vary from state to state. In a situation where I make an California hard money loan at 18% interest, I could be in violation of a local state’s usury laws. If I buy a 10% note discounted to yield 18% – that would not be usury. Making or buying a usurious loan can lead to a complete loss of all interest as well as other potential damages. There are federal “truth in lending” laws that apply to mortgage lending as well as local state versions in some states like California. For example, the APR – Annual Percentage Rate must be disclosed on a loan that includes points and other loan costs. It can be a violation of federal law not to do so. Violation of these laws could lead to a total loss of interest and principle on a loan, lawsuits or judicial problems. Buying a discounted mortgage is a whole different matter. Most laws do not apply to a secondary buyer.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027111 Congress Ave |Austin | Texas | 78701
About the author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true.
Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.