What I’m reading: Capital Returns edited by Edward Chancellor.
Banks have capabilities that we’ll never have. They can make term loans for 5-10 years and balance sheet the loans. They’re always less expensive than hard money. But we have capabilities that bank’s lack. Here’s an example where a Hard Money Lender with some knowledge and the willingness to pick up the phone has an edge over banks.
It’s not unusual that we’ll lend money in the first position subject to a Certificate of Substandard Building. This recorded document goes by slightly different names in different parts of the country. They’re also treated and corrected differently depending on where you live. In one of the markets where we lend, it is recorded after a code enforcement officer has found the property to be substandard under the provisions of the Code and the owner has failed to resolve the Code violations in a timely manner.
In fact it’s common that a previous owner was originally noticed about these code violations years before. They failed to cure the violations because they were losing the property to the bank anyway. The property went to foreclosure. Time passes. The property is taken back by the bank. Times passes. The bank does nothing. Finally, our borrower buys the house from the bank.
This recorded document makes the building “unbankable.” But because we (and our borrowers) know the process involved to remedy the Certificate, all we need to confirm as a Hard Money Lender is that the building is not scheduled to be demolished and that our client will pull a permit to promptly remedy the deficiencies.
Above is a snapshot of code violations from a recent loan where the property had a Certificate of Substandard Building recorded. These deficiencies kicked around so long that the code enforcement officer that signed the notice has retired.