Commercial Loans Blog

Marketing For Commercial Loans When the Market is Flooded

Posted by George Blackburne on Tue, Jun 24, 2014

Office BuildingThe new Dodd-Frank Regulations have driven a ton of former residential loan agents into the commercial loan business.  I have never seen so many guys chasing commercial loan leads.  In a market flooded with commercial loan agents, the wise commercial mortgage broker will adjust his marketing strategy.  Commercial loan brokers need to market for commercial loans more directly, rather than just marketing to residential loan agents.

In the past, my own commercial hard money mortgage company, Blackburne & Sons, would advertise almost exclusively to mortgage brokers.  Historically only about 10% of mortgage brokers worked commercial mortgage leads, and we could be sure of a good volume of commercial loan referrals by offering a 20% referral fee.

Nowadays, however, most mortgage brokers can't afford to just refer out their commercial loan leads.  They need to work these commercial loan requests themselves.  When they do work the leads themselves, they don't necessarily bring these commercial loans to us.

In response, Blackburne & Sons is starting to bypass commercial loan brokers in favor advertising to other sources of commercial loans, which is a more direct approach to the end-borrower.

Enough work.  Time for a little fun:

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As a general rule, you seldom want to advertise directly to commercial real estate investors for commercial loans.  The reason why is because refinancing a commercial loan is very expensive.  There is the $3,500 appraisal fee and then the $2,300 toxic report fee.  Then the closing attorneys need to be paid their thousands.  Since closing commercial loans is so expensive, most investors only refinance their commercial buildings when they are forced to.  In contrast, I have refinanced my home four times in the past six years.  In many cases, there was no cost to me.

The reason it makes little sense to market directly to commercial real estate investors is that the chances of your advertisement arriving at the exact time that an investor plans to refinance his commercial property is very, very low.  Six times over the past 34 years I have sent out more than 10,000 direct mail pieces to commercial real estate investors.  These costly snail mailings have never produced a closing.

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From a passenger ship, everyone can see a bearded man on a small island who is shouting and desperately waving his hands. "Who is it?" a passenger asks the captain.  "I've no idea. Every year when we pass, he goes nuts.

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So how does a commercial loan broker find commercial loans to place, especially when the market is flooded with competion?  You will find commercial loan leads by soliciting referrals from workers who see commercial real estate transactions cross their desk on a weekly basis.  Let me give you some examples:

  1. Commercial bankers (you solicit their turndowns)
  2. Commercial real estate brokers
  3. Property managers
  4. Other lenders, like credit unions or hard money lenders
  5. Residential mortgage brokers (on a name and number basis only)
  6. Residential real estate agents
  7. Real estate and bankruptcy attorneys
  8. CPA's and accountants
  9. Insurance agents and estate planners
  10. Investors who own 3+ commercial-investment properties
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Two men were stranded on an island.  One man just sat down under a tree and did nothing. The other man looked all over the island.  When he came back, he said, "There is nothing here -- no food, no shelter, no nothing. We're going to die."

The first man said, "I make $10,000 a week," and continued to sit.  The other man again looked all over the island and came back dejected.  "We're going to die," he said.  The first one again replied, "I make $10,000 per week."  And he sat.

The other man took one more look all over, returned, and said, "There's no way we will ever get off this island. We're going to die."  Once again the first man replied, "I make $10,000 per week, and I tithe.  My pastor will find me."

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"Okay, George, I understand that you want me to market to guys who see commercial loan deals crossing their desks on a regular basis.  I get that.  But HOW do I market to these guys?"

Here's what you do:  You develop a fun and interesting newsletter, something that your best friend would enjoy, and you send it out to your contacts by email on a regular basis.  Here is one of my sample newsletters.  Just make sure it is jam-packed with cute, clean jokes, funny pics, and cool videos.

You will need a nice template for your newsletter.  Feel free to call the wonderful website designer that I use, John Merry, at 916-941-1180.
 
Please Click Here ToBuy Commercial Lead
You may have noticed that we at C-Loans. com regularly solict bankers for their commercial mortgage turndowns.  That's why we're willing to trade 2,000 bankers making commercial loans for just one from you.  Helluva deal.
 
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Since Blackburne & Sons can no longer rely on just commercial loan brokers to bring us deals, I am encouraging our loan agents to expand their solicitation lists to also include bankers, commercial real estate brokers, property managers, residential real estate brokers, other commercial lenders, residential real estate agents, CPA's, accountants, attorneys, and insurance agents.
By the way, do you need a scratch-and-dent commercial loan right now?
 
Apply For a Commercial Loan to Blackburne & Sons
Are you working on a loan for an investor to buy a commercial-investment property?  Frustrated that the bank won't make you a large enough loan?  We'll add our equity to your downpayment to create a downpayment large enough to satisfy the bank.
 
Learn More Details About Preferred Equity
Or maybe a different, more aggressive bank will loan you more money?  Sometimes its all about finding that perfect fit.
Submit Your Loan to 750 CommercialLender
Did you learn a little today?  Why not take my complete commercial mortgage marketing course?
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The lesson to be learned from today's training article is this:  When the commercial loan market is flooded with commercial mortgage agents, go more directly to the source.  Don't just have commercial loan brokers bring you deals.  Instead, go around them and go directly to the commercial real estate brokers, bankers, and CPA's who have the clients who need commercial loans.

Topics: Go direct

Purchase Money Commercial Loans Are Safer

Posted by George Blackburne on Fri, Jun 20, 2014

Why Real EstateIn my opinion, purchase money commercial loans are much safer for a commercial lender than refinances.  The reason this is important to you is because soon wealthy real estate investors will be returning to the commercial-investment market, and you will be working on a ton of purchase money commercial loans.  This article, among other things, will help you sell the bank on making you - or your client - the required commercial loan.

Since the start of the Great Recession in 2008, the commercial real estate market has seen a huge decline in the number of commercial loans made for commercial-investment purposes.  A commercial-investment property is a business property that is owned for the primary purpose of generating net rental income.  Commercial-investment properties are usually purchased by wealthy investors wishing to receive a cash flow from their investment greater than what they can earn in CD's, bonds, or dividend-paying stocks.

It is easier to understand the concept of a commercial-investment property if you contrast it with an owner-user business property, like a bowling alley, a restaurant, or a hotel.  Commercial-investment properties, in comparison, are far more passive.  The investor earns his return from rental income, rather than from business income.  Examples of commercial-investment properties include multifamily, office, retail, industrial, and mobilehome parks.

Glitter

The U.S. economy is rebounding strongly.  American companies cut a lot of waste during the Great Recession.  Sophisticated robots in American factories are replacing cheap Chinese workers (who have reached almost full-employment and who are not as cheap any more).  On-shoring (as opposed to off-shoring) is the new trend, as American companies realize that domestic manufacturing gives them better quality-control and faster response times.

Fracking and horizontal drilling here in the U.S. are generating many new high-paying American jobs, and these new wells have greatly reduced our reliance on foreign oil.  But there is another, even more important, benefit of fracking.  These wells are producing vast amounts of dirt-cheap natural gas.

Dirt-cheap natural gas give the U.S. a huge economic advantage in heavy manufacturing.  Millions of heavy manufacturing jobs will be migrating from Europe and Asia to the U.S. because of our dirt-cheap energy (Source:  Boston Consulting Group).  Housing is also recovering.

Bottom line:  The U.S. economy is recovering strongly, and commercial real estate will benefit.  Commercial real estate investors will soon be snapping up decent commercial buildings almost everywhere, and you will get to finance them.

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Married for 25 years, I took a look at my wife one day and said, "Honey, 25 years ago we had a cheap apartment, a cheap car, slept on a sofa bed and watched a 10 inch black and white TV, but I got to sleep every night with a hot 25-year-old blonde.

Now, we have a nice house, nice car, big bed, and plasma screen TV, but I'm sleeping with a 50-year-old woman. It seems to me that you are not holding up your side of things."

My wife is a very reasonable woman. She told me to go out and find a hot 25 year-old-blonde, and she would make sure that I would once again be living in a cheap apartment, driving a cheap car, sleeping on a sofa bed.

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No matter how sweet your purchase-money commercial loan, the bank is likely to push back over the idea of making a non-government-insured commercial loan, i.e., the loan is guaranteed by neither the SBA nor the USDA.  When the bank does push back, remind them that purchase money commercial loans are much safer than refinances because:

  1. The fair market value of the collateral has been established in the open market.  The commercial lender does not have to rely on just the opinion of a fallible and/or potentially crooked appraiser.  The fair market value has been established by the arm's length negotiations between the seller and the buyer.
     
  2. The buyer of the commercial property is putting down cold, hard cash.  Some commercial lenders call this down payment "skin in the game".  I call it "blood money", and it represents the buyer's blood on the porch that the lender will step over when he forecloses.
     
  3. No matter how well a commercial lender underwrites, there is always the possibility that the borrower's business has suddenly taken a downward spiral.  Borrowers with financial trouble seldom rush out to put a large down payment on a commercial property.  Investors who go out and buy commercial-investment property are usually very sound and solvent financially.
Morons

One of the problems you will quickly discover trying to make commercial loans on commercial-investment property is that the bank will only want to finance 60% of the purchase price, and the bank will NOT allow a second mortgage.  This means that your buyer has to put a whopping 40% down. 

Blackburne & Sons has introduced a new preferred equity program where we will add our fresh equity dollars to your buyer's 25% downpayment to create the 40% downpayment required by the bank.

Learn More Details About Preferred Equity

Unlike the bank, our hard money commercial mortgage company, Blackburne & Sons, WILL allow the seller to carry back a second mortgage behind one of our new first mortgages.

We will make a 75-0-25, a 70-10-20, a 70-15-15, or a 65-25-10, where the final number is the size of the buyer's downpayment.  "But George, the SBA will make a loan of 90% LTV."  Those are owner-user commercial loans, not commercial-investment properties.

Apply For a Commercial Loan to Blackburne & Sons

I have a full-time employee who calls banks and credit unions all day long, where he invites them to join C-Loans.com.  Most of these banks are scarety-cats, and they decline.  I have assembled these banks into The Blackburne List, a huge list of 2,000 commercial lenders, organized by state, that I sell for $39.95.  If you are loathe to invest $39.95, its easy to get The Blackburne List for free.

Free Directory of 750+  Commercial Real Estate Lenders

"But, George, my borrrower has perfect credit and big tax returns.  He will never pay Blackburne & Sons' hard money rates."  Then submit your "A" quality commercial loan using C-Loans.com.  It takes only four minutes.  You can submit your commercial loan to 750 different commercial lenders, six lenders at a time.

Submit Your Loan to 750 CommercialLender  

 "But George, commercial mortgage portals don't really work."  Oh, yeah?  C-Loans just (6/7/14) closed an $18.5 million construction loan on a mixed-use project in Wisconsin.  The broker earned a $92,500 commission.  What would you do with a $92,500 commission?

Topics: purchase money commercial loans

Commercial Loans and Lease Options to Buy

Posted by George Blackburne on Thu, Jun 12, 2014

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Most borrowers, when exercising a lease-option on a commercial property, will use an SBA loan.  There are times, however, when an SBA loan won't work, and a private money commercial loan from Blackburne & Sons can help.  Today we cover those situations, but first, some background:

A lease-option-to-buy is an agreement between a landlord and his tenant, whereby the tenant agrees to lease the real estate, but only if the tenant is also granted the right to buy the property for a certain price during the term of the lease.  In the typical lease-option agreement, the tenant pays a monthly rent that is more than than fair market rent of the property.  The amount in excess of fair market rent is credited towards the buyer's eventual downpayment.  If the tenant decides not to exercise his option-to-buy, the landlord keeps the excess rent as his option fee.

When a commercial tenant chooses to exercise his option to buy, he will need a commercial loan.  Most of the time commercial borrowers, with a lease-option-to-buy, are eligible for an SBA loan because the property is owner-used.  By the way, the expression, owner-used, is actually more precise than owner-occupied because a commercial tenant does not actually live in the property.

By the way, did you know that all SBA lenders are not the same?  Even though the SBA guarantees 70% to 90% of an SBA loan, the bank originating the SBA loan still has to retain the risk of loss on the remaining 10% to 30% of the loan.  Therefore, because commercial lending is subjective (determined by the judgement, experience, economic optimism, and prejudices of Loan Committee), one SBA lender might turn you down, while another SBA lender might approve the exact same loan.  The first bank just might not be willing to take the risk of loss on the 10% to 30% portion that the bank has to retain.

Therefore just because one SBA lender turns you down doesn't automatically mean that you do not qualify for an SBA loan.  It could very well be that the SBA lender who turned you down was pessimistic about the widgets industry (your industry) or recently took a loss in your area of the city.  Another SBA lender might be wildly optimistic about the widgets industry or may enjoy three other performing loans in your neightborhood.

If you are exercising a lease-option, be sure to submit your commercial loan application to several different SBA lenders.  You can submit your commercial loan to over 200 different SBA lenders in just four minutes by using C-Loans.com.

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"A slipping gear could let your M203 grenade launcher fire when you least expect it. That would make you quite unpopular in what's left of your unit." -- Army's magazine of preventative maintenance 

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Okay, so when would it make sense to use a private money lender, like Blackburne & Sons, rather than an SBA lender?

  1. Maybe the buyer's credit is spotty because he went through a divorce.
  2. Maybe the buyer's company really got beat up financially during the Great Recession.
  3. Maybe the seller has offered to carry back a second mortgage.  SBA lenders won't allow a second mortgage.
  4. Maybe the buyer's downpayment is a little light.  By taking additional collateral (or not), Blackburne & Sons can often make the deal work.
  5. We see the following situation a lot:  The tenant pours $125,000 into upgrading the property, but when it comes time to buy the property, he lacks the 10% downpayment in cash needed to satisfy the SBA.  The smart private money lender will still make this deal.  The purpose of a downpayment is to make sure than the buyer has some skin in the game.  In this situation, the buyer has clearly made a serious economic commitment to the property.
  6. Commercial real estate fell by 45% during the Great Recession.  Suppose a lease-optionee (the tenant) executed his lease-option during the nadir (lowest point) of the Great Recession.  Since then commercial real estate has recovered significantly (but far from all of the way).  An SBA lender is not going to give the lease-optionee any credit whatsoever for that appreciation, while Blackburne & Sons will strongly consider it.

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"If you see a bomb technician running, try to keep up with him." -- USAF Ammo Troop

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Blackburne & Sons is extremely bullish on commercial real estate right now.  The Great Recession is over, and in my opinion the United States is facing the largest and most wonderful economic expansion in its 230-year history.  I genuinely believe the future is so bright, we gotta wear shades.

A lot of good things happen when banks are willing to make loans to businesses.  To a very large extent, the Great Recession was so cataclysmic because banks stopped making new business loans.  See my 2006 book, The Reverse Multiplier Effect

That's why I felt like dancing when I read the following:  Bank loans and private-sector credit grew "very slowly" until January, he explains. "Since then the Fed's weekly data show that bank loans to private businesses have accelerated sharply and are on track to grow by $700 billion in 2014 after only growing $140 billion in 2013."  Folks, this is immensely bullish news for the economy.

It also helps to explains why Blackburne & Sons is so bullish on commercial real estate and is currently willing to consider new commercial loans that we would never have considered during the Great Recession.

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"When the pin is pulled, Mr. Grenade is not our friend."  -- U.S. Marine Corps

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If you need a private money commercial loan, please be sure to submit your deal to Blackburne & Sons.

Apply For a Commercial Loan to Blackburne & Sons

If you need an SBA loan, you can submit your commercial loan mini-app to over 200 different SBA lenders using C-Loans.

Submit Your Loan to 750 CommercialLender

We have an employee whose full-time job is to call commercial lenders and to invite them to join C-Loans.com.  Those that decline are added to The Blackburne List.  You can either buy The Blackburne List for $39.95 or trade us one banker and get the entire list for free.

Free Directory of 750+  Commercial Real Estate Lenders

Vomit

Topics: Lease-option commercial loans

Commercial Loan Lessons #2 - Meeting the Wealthy

Posted by George Blackburne on Thu, Jun 5, 2014

I have often said, "There is no better way to meet high-net-worth investors than to be a commercial mortgage broker."

Even if you are a commercial real estate broker (aka "commercial broker"), you should open a commercial mortgage company and broker some commercial loans on the side, when sales are slow - just for the opportunity to meet wealthy investment property investors.  In my role as a commercial mortgage lender, today I met the investment manager of a family office.  Folks, this is a huge deal!  This could potentially be a very important contact.

A family office is usually a small company of three or four employees that manages the investments and the business affairs of a single, extremely wealthy family.  Usually we're talking about investment portfolios in excess of $30 million, and some family offices manage investment portfolios as large as $500 million or more.

A family office does far more than merely manage the family's investment portfolio.  A family office will also provide for tax compliance work, access to private banking and private trust services, document management and recordkeeping services, expense management, bill paying, bookkeeping services, family member financial education, family support services, and family governance.

Lemmings

Whether you are a commercial broker or a commercial mortgage banker, you need to develop a fun newsletter with which you can stay in touch with your clients.  At Blackburne & Sons, we use iContact.com as our newsletter service.  I think it costs less than $60 per month to send out 4,000 email newsletters every business day.

I will try to stay in contact with this family office investment manager by sending him lots of folksy, fun, down-to-earth, opposite-of-professional newsletters.  In every newsletter I will include lots of jokes, funny pics, and cool videos.  I will also try to reach him with a newsletter every three weeks for decades.

I call these the fun treats in my newsletters "Rat Goodies".  Back in the 1960's a famous psychologist, B.F. Skinner, conditioned rats to press a lever to get a rat goody.  If we can condition rats to press a lever to get a rat goody, we should be able to encourage our friends, clients, and pen pals to look forward to our newsletters (and blog articles) because they always include fun treats.

"Gee, George, are you trying to condition me?"  Yes, I am, but its for a noble purpose - so we can make money together and have fun doing it.

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Last year I started selling The Blackburne List, a list of 2,000 commercial real estate lenders who said, "No," when we asked them to join C-Loans.com.  We would sell maybe two or three copies of the list every week at $39.95.

Then we added the opportunity to get The Blackburne List for free, merely for trading us the name and the contact information of one banker making commercial loans.  It's a helluva deal for the guy making the trade - 2,000+ bankers for just one.  Not surprisingly we're making one to two such trades per day.

But the thing that is blowing my mind is that outright sales of The Blackburne List have tripled.  For some reason many guys would prefer to pay the $39.95 rather than give up the name of one of their bankers.  Go figure.  We're happy either way.

Free Directory of 750+  Commercial Real Estate Lenders

We're still dancing in the aisles here at C-Loans over our closing this week of an $18.5 million construction loan on a mixed-use project in Wisconsin.  If you had brokered that deal and charged the borrower 50 basis points, your commission would have been a whopping $92,500.  What would you do with $92,500?

By the way, a basis pointoften abbreviated "bps." and pronounced bips, is just 1/100th of a point.  Therefore 50 basis points is 50/100ths of a point ... or one-half point.

C-Loans.com has closed over 1,000 different commercial real estate loans totaling over $1 billion.  "Yeah, yeah, George, I 've heard you say that a dozen times."

But here's the thing that you need to understand:  The Suggested Lender List for every commercial loan search is different.  Different lenders make different size and types of commercial loans.  Just because you have a disappointing response to one commercial loan - say, a $275,000 loan on a bar in the ghetto to a guy with poor credit - doesn't mean that you won't meet tons of dreamy lenders on a different deal - say, a $3 million loan on an apartment building in Austin, Texas.

Submit Your Loan to 750 CommercialLender

Here's your final treat for the day:

Tortoise Died

Stop the presses!  Jeff Smith of StarFury Capital Management just asked me, "Ok, George, that sounds great.  Now how can we mere mortals meet the high execs of family offices?"

The answer is to broker commercial loans!  The larger the loans that you broker, the wealthier your borrowers will be.  Remember the Net-Worth-To-Loan-Size Ratio says that the borrower's net worth should be at least as large as the loan size requested (1.0 ratio).  If you work only on $10 million loans, you should meet plenty of guys with a net worth of $10+ million.

And when you "meet" a wealthy investor - even if its only over the phone and even if you only quote him a loan - keep marketing to him for years.  That's how I built my $50 million hard money shop.  Every time I met a high-net-worth commercial borrower, for the four years leading up to when I started selling trust deed investments, I saved his contact information and kept my name in front of him with my newsletters.

This investor was special.  I had met him in the legitimate course of business.  With him, I had legitimacy.  I earn 2% per year for loan servicing.  Do the math on $50 million in servicing.

Grasp this concept:  Every one of my early trust deed investors was a former borrower!  It's a strange notion, but an investor is an investor.  The same guy who invests in large apartment buildings, and hence needs a big apartment loan, is also the guy who buys stocks and trust deeds.  An investor is an investor.

Topics: Meeting wealthy investors

C-Loans Closes $18.5MM Construction Loan on a Mixed Use Project

Posted by George Blackburne on Tue, Jun 3, 2014

Mick Carlson, General Manager of C-Loans, Inc., is pleased to announce that C-Loans has just closed an $18.5 million commercial construction loan on a mixed use project in Monona, Wisconsin.  Who says no one is making commercial construction loans these days?

Mixed Use

Mixed-use is not the same as mixed-commercial.  A mixed-use property combines residential income units (usually apartments) with commercial space (usually, but not always, retail).  

There was an issue with mixed-use properties that scared away many lenders in the 1970's - noise.  In the 1970's there were a number of court cases that penalized lenders which had foreclosed on mixed-use properties.  The residential tenants sued the lenders for a breach of their right of quiet enjoyment to their apartments.

Apparently the prior owners of these mixed-use properties had rented the ground floor commercial units to noisy bars or loud disco's.  The poor residential tenants couldn't sleep at night, but they didn't want to move out because of the cost of moving or because they had rent-controlled apartments with below-market rents.  The foreclosing lenders had to either buy out the successful disco with a ten-year lease or buy out the residential tenants.  For several decades afterwards, mixed-use properties were shunned by most lenders.

In contrast, a mixed-commercial property is one that mixes two different classes of commercial property, like offices over ground-floor retail or retail in front of self-storage units.

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A lady tells the story:  Waiting for our aerobics class to begin, several of us were standing around in our leotards chatting about fitness and diets. One woman said that her brother-in-law had quit smoking, gone on a diet, and lost weight - all at the same time. 

Thinking to myself that no human being could possibly do this without acquiring at least one other undesirable habit for compensation, I jokingly asked her, "What did he start doing instead of these things?" 

After a slight pause, she smiled and said, "Well, my sister is pregnant now."

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This huge $18.5 million closing is an important milestone for C-Loans.  Even though we have closed over 1,000 different commercial real estate loans totaling over $1 billion, many of the large-loan lenders refused to believe that it was possible to close large commercial loans over the internet.  On top of a $17 million closing, this new $18.5 million closing finally puts this prejudice to bed.

Commercial construction lending is poised to come roaring back, as new commercial construction was almost non-existent during the Great Recession.  C-Loans, Inc. is so bullish on commercial construction lending that we just went out and paid a small fortune for the domain, CommercialConstructionLoans.com. 

Ultimately all of our loan requests get funneled into C-Loans.com.  If you need a large commercial construction loan - or any type of commercial real estate loan - please enter it into C-Loans.com.  Remember, it takes only four minutes, and C-Loans.com is free!

Submit Your Loan to 750 CommercialLender

Somewhere in your pencil drawer is the business card of a banker who makes commercial loans.  It's probably stained and dog-eared, and you probably haven't even looked at in months.  You can trade the contents of this stinky 'ole business card for a free, written directory of 2,000+ commercial real estate lenders.

Free Directory of 750+  Commercial Real Estate Lenders

Sooner or later you will be trying to get a commercial loan so that either you, or your investor client, can buy a commercial-investment property (as opposed to an owner-user property).  You will be very frustrated to learn that your bank will not lend up to 75% loan-to-value.  The bank will want you to put down a whopping 40% of the purchase price.  Blackburne & Son's will invest preferred equity in your project to make your down payment large enough.

Learn More Details About Preferred Equity

Topics: $18.5MM Closing

Difference Between a Commercial Mortgage Loan and a Deed of Trust

Posted by George Blackburne on Mon, Jun 2, 2014

MortgageA commercial loan, if secured by deed of trust, can be foreclosed much faster and much more cheaply than a commercial loan secured by a mortgage.  California, like most of the states in the West, is a deed of trust state. This is why the trust deed investment business (hard money mortgage business) is so large in California.

So what is the difference between a mortgage and a deed of trust?  A mortgage has two parties - the mortgagor and the mortgagee.  The mortgagor is the party who gives away a mortgage to his property.  In other words, the mortgagor is the borrower.  By the way, any time you see a legal word ending in "or", that is the party giving away something.

The lender is the mortgagee.  He is the party receiving the mortgage as security for his loan.  Any time you see a legal word ending in "ee", that is the party receeeeiving something.  In this case the mortgageeeeeee is receeeeeiving a mortgage as security for his loan.  If the mortgag-OR (borrower) doesn't make his payments, the mortgag-EE can foreclose the mortgage.

In order to foreclose a mortgage, the mortgagee (lender) must use the courts.  In most states, the courts are backed up for months and months.  This can be a very slow process.  It once took Blackburne & Sons over 17 months to foreclose a mortgage in the state of New York.

Many of the states East of the Mississippi are mortgage states; i.e., a commercial lender has to foreclose his commercial mortgage loan using the very slow courts.  If only there was a way to bypass the slow-pokey court system ...

Tech support

A deed of trust is a three-party document (trustor, trustee, beneficiary), rather than a two-party document (mortgagor, mortgagee).  A deed of trust bypasses the need to use the courts to foreclose a commercial loan.  Therefore it is much faster to foreclose a deed of trust than a mortgage.

What's the difference between trust deed and a deed of trust?  Nothing.  They're identical.

Here's the way a deed of trust works.  The trustor (borrower) gives away bare legal title to the property to the trustee.  The trustee is a neutral, private intermediary, trusted by both sides of the contract, who holds the bare legal title to the property for the benefit of the beneficiary (lender).

Think of the trustee like a stakeholder.  Suppose my son, Tom, and I wanted to bet $50 over who was going to win the NBA championship.  Let's suppose that neither of us trusted the other.  We could give the money to Mickey, a mutual friend, to hold until the NBA Championship was over.  We would each give Mickey instructions, "Here is $50 from each of us.  Please give the winner the entire $100."  (And then I would fire Mickey when he fails to give me the $100, even though I lost.  No wonder my son doesn't trust me!)

Please note that the trustee is NOT some court, although he is often either an attorney or a title company.  He's just a private guy or a private company, not some slow-pokey governmental official.

The trustee holds bare legal title for the benefit of the beneficiary (lender) until the debt is repaid.  If the borrower fails to make his payments, the beneficiary notifies the trustee, who then schedules a PRIVATE foreclosure sale (Trustee's Sale) about four months later.  I screamed the word "private" because there is no slow-pokey court or government official involved.  Without any involvement of the courts, the trustee can conduct a trustee's sale, and, if no one bids at the sale, issue a Trustee's Deed in favor of the beneficiary.

Several times I used the expression, "bare legal title".  Bare legal title is just the right to hold title to the property until a deed of trust or mortgage loan is paid.  It's called "bare" legal title because the trustee does not own any of the other rights of ownership - like the right to occupy the property, the right to exclude others, the right of quiet enjoyment (stop bugging me on my property!!!), and the right to collect rents.

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Topics: mortgage vs. trust deed