By far the most frequent question asked by our lenders is, “WHY DIDN’T THEY GO TO THE BANK?” Most lenders do not appreciate the fact that banks do not have the ability to make rapid decisions and close a loan in a short period of time (usually 7 to 10 days) at the exact rate and fees that were quoted. Banks are generally able to make real estate loans on owner-occupied single family homes where the borrower has never been late on a payment, isn’t self-employed, etc., etc., etc.
V.I.P. borrowers are not the dregs of society. Our borrowers are ordinary people who simply need to buy a property or refinance an existing property. These people do not have 2-3 months to apply to a conventional lender and “hope” that they can get a loan. V.I.P. gives “exact” loan quotations within hours, and we are known throughout the industry for RAPID CLOSINGS. Though we are not associated with the “Red Cross,” we are there when a borrower needs us.
I have listed below some of the thousands of actual examples of earnest borrowers who came to us instead of a bank.
Many of the actual loan examples below took place in the 1978-1998 time period…in 1998 new examples were added. Please Note that V.I.P. Trust Deed Company is still here after 32 years, while many major lenders are long gone. The names “Glendale Federal” and “Home Savings” mentioned below, are just two examples…remember them? We have not updated this list since 1998 as the examples still make the same point; the only difference is that there are now thousands of more examples.
1) A potential borrower worked for a major movie studio for 15 years. He moved to Agoura, quit the studio job and opened a feed store. He owned a house in Agoura and a rental in Burbank. He had plenty of equity, excellent credit and had been a good customer of a major bank for many years. He needed a $25,000 second trust deed for inventory in the feed store. This pristine borrower could not get the time of day from his bank because he was (now) SELF-EMPLOYED (shame on him!) and did not have two years of income tax returns for the new business. Good for V.I.P., tough for the bank!
2) A family that had known of our company for years had a son who needed a down payment for a house. The parents felt guilty that they had not accumulated a “nest egg” over the years. The parents borrowed $40,000 from us (10 days) and gave each of their two children $20,000 for a down payment.
3) Several years ago a young man was about to get an “inside deal” on a sought-after Corvette. He had it resold for a substantial profit. The borrower needed $17,000 (a few years ago) for the purchase. He had plenty of equity but needed a written commitment the same day.
A break here. How many of you are self-employed? If so, do you report as much income as possible or do you use good CPA’s to minimize taxes? Banks “theoretically” don’t understand this behavior. Banks like people who have worked for a company for many years and can produce pay vouchers. Now back to more examples.
4) You probably won’t believe this next one. We made a FIRST TRUST DEED of approximately $48,000 on a beautiful industrial building in Santa Fe Springs that was worth approximately $475,000. That’s right, approximately 10 per cent loan to value ratio. The existing bank would not renew their loan. Aha, you say, must be an unemployed borrower. No, the owner was a man and his two sisters. The man happened to be a priest and one of the sisters was EXACTLY that: a Sister (nun). Same deal–Good for V.I.P., too bad for the bank.
5) How about the divorcee who gets the house with plenty of equity and minimal child support? She wants to finish a nursing degree which will take approximately one year and, with living expenses, approximately $30,000. Yes, the bank makes loans to home owners but certainly not to unemployed home owners.
6) For years we did business with two young brothers who would purchase a property and then either purchase the adjoining property and/or obtain plans and permits for an apartment project. They would then sell the “package” to a builder. We made most of their first trust deeds when they bought property. For example, they would buy a house or units, let’s say for $200,000, and we would arrange a first trust deed for $130,000 to $140,000. Yes, they could have gone to the bank. Their credit was excellent, BUT banks don’t like self-employed people, banks don’t like people who are not owner-occupants, and banks don’t like property if the house needs a paint job and a lawn. We don’t mind. My favorite expression is “everything is relative.” These young men, by the way, had lost more than one deal in the past because the bank had promised them something and not delivered. We have been here over two decades with the reverse track record; we deliver as promised.
7) How about the Glendale school teacher who had applied to a Glendale savings and loan and had been approved for a loan. The loan was in process for approximately six weeks. The loan officer was sick for a few days then out of town for a few days, etc. It became apparent that the loan was not going to close when promised and they had an IRS deadline (previous residence sale) to meet. I will quote verbatim two paragraphs of a letter. (The original is on my office wall.) Hopefully these two paragraphs might indicate why somebody is willing to pay more with V.I.P.:
“BUT TO APPROACH YOU FOR A LOAN ON MONDAY, TO HAVE YOU FUND ON TUESDAY AND OUR REAL ESTATE ESCROW TO CLOSE ON WEDNESDAY IS AN ALMOST UNHEARD OF ACCOMPLISHMENT–ESPECIALLY SINCE IT WAS DONE ON DECEMBER 22, 23, AND 24 PRECEDING CHRISTMAS–A TIME WHEN IT IS DIFFICULT TO ACCOMPLISH ANYTHING.
Your great service also meant a lot to the borrowers, Mr. and Mrs.——, because if we had gone beyond Christmas to close their escrow, they would have incurred a tax liability to the federal government. Your prompt action saved them approximately $13,000.”
8) One of my best stories is about a major lender of mine who had been doing hundreds of thousands of dollars of loans with me every year. Obviously a substantial party. They purchased some property in San Luis Obispo for under one million dollars. They went to their best bank just to learn that:
- They would not be owner-occupants.
- The house was of little value compared to the land and the bank doesn’t make loans on land.
- Since these people were self-employed, they didn’t have up-to-date financial statements, which would take a couple of weeks to prepare.
The bottom line: no loan. One of my major lenders then became a BORROWER. We made three separate loans totalling approximately $400,000, WITHIN TWO WEEKS.
I gave a class project each semester in my Real Estate Finance class. The students had to call a lender and get certain information about a home loan. You would be amazed at how many students had to call two or even three lenders to get simple basic loan information, much less a loan commitment.
Real estate brokers refer loans to us daily because they KNOW that we WILL do a loan that another institution MIGHT. It is very hard to cash a commission check on a deal that “might” close.
At this writing, we are making a FOUR DAY loan for a lady who is moving to San Diego to buy a mobile home. Her La Crescenta home sold for $248,000 and was due to close last week. Are you getting the picture? “It didn’t close” and she owns the property free and clear. We are processing a $26,500 first trust deed for her IMMEDIATELY.
All of the above verbiage was written over ten years ago. I felt it wise to include some more up to date examples. For the past three or four years we have done a lot of financing for property buyers who purchase properties from banks after a foreclosure sale. Many of these buyers make “all cash” offers with 14-21 day escrow closings. These buyers know that we can fund a first trust deed for 65-70% of the PURCHASE PRICE on a rapid basis.
Approximately a year ago, three partners approached us for EMERGENCY funds. They had arranged four REO purchases from four banks and the loan broker was stalling and stalling and stalling. They had already been forced to pay an extra $10,000 on one property because of the delay. These borrowers came to us for over $1,000,000 in financing that they needed “immediately.” Since all the properties were already in escrow and preliminary title reports were available, we closed the first deal ($250,000 first trust deed) in three days. We closed the other three approximately five days apart. All the deals except the first were easy for us. Since that initial “rescue,” we have done at least $2,000,000 more business with these professional foreclosure buyers.
Approximately a month ago, we received a call on a MONDAY AFTERNOON from a local CPA. He owned a commercial building. The commercial building next door was in foreclosure and the sale was Wednesday morning at 11:00 a.m. The CPA was willing to pay up to $420,000 for the building. By Tuesday afternoon (one business day) we had arranged to attend the sale with $300,000 of our money and the CPA funding the difference. The opening bid on the bank first trust deed was a few hundred dollars less than $290,000. The CPA bid $290,000 and bought the property. We then recorded a first trust deed for one of our private party lenders in the amount of $200,000, with the CPA funding the $90,000 difference.
I have given you many examples of day to day loans and not one deadbeat listed. Six months from now, you will still scratch your head and ask me, “Why do these people come to you when they could go to the bank for less money?” We are equity lenders, and are similar in some ways to a pawnbroker. Is a $l,000 loan on a genuine gold Rolex safe? I will let you decide. The watch sells for $10,000-12,000 today. Yes, the pawnbroker has to beware of stolen goods and we have to investigate title and do our homework also. That is what makes life fun.
I will leave you with a conversation that I have with unsophisticated borrowers from time to time. Some borrowers complain, “Wow, that is too expensive–Home Savings is cheaper in both interest and points.” I usually agree and then suggest they get the loan from Home Savings. They then tell me, “They won’t make the loan because:
- They cannot do the loan soon enough OR
- I take in a lot of cash and `don’t show enough income’ OR
- They don’t do loans on mixed use (or whatever) property…etc., etc., etc…”
I have a particular story for that occasion. A customer complains to the grocery store about the 89 cent per pound apples and says the same apples down the street are only 69 cents per pound. When the grocery store owner suggests that the customer buy the apples down the street, the customer then says, “I would, but they’re out.” The grocer then says, “When we are out we sell apples for 49 cents per pound.”