Monday, August 08, 2005

Any idiot can lend money, the real skill is in getting it back.

Despite my jaded exterior, I tend to expect people to be honest, I really do. Having said that, it doesn't take a lot get my suspicions aroused. Like the deal we are grappling with this week:

  • $300,000, 3 month mortgage (a bridge loan really) against raw land valued at about 1.6 mm Cdn. Land is in a desirable industrial area just outside of Toronto.
  • Borrower claims that he needs the money to buy out his partner, who happens to be his brother
  • Borrower claims to have arranged a one year interest only mortgage for about 50% of the value of the land, but needs about 1 month (the city and the utility company need time to locate the services on the land before the bore holes are dug) for some environmental testing that the long term lender requires, hence he need us to bridge him.
  • Borrower has agreed to a large amount of fees (to both us and the mortgage broker) in addition to sub prime lending rates (12% to 20%) for both of these mortgage.
  • Every day he promises to bring us a certified cheque for a deposit, which has yet to show up. My bet is that he is just going to ask us to take it out of the advance when this deal "closes"

Now here is where it gets interesting:

  • The borrower refuses to meet us at his factory that he co owns with his brother. This despite having offered to meet us there on multiple occasion;
  • We call the factory the borrower claims to own, ask for the borrower, and end up speaking to someone we don't recognize who owns the land, but has no knowledge of or interest in mortgaging the land. We call the borrower on his cell phone and he says that was his brother just trying to cause him problems and make us nervous;
  • We call the city to see if there if there is an order ticket to go and located the services on the land before the bore holes are dug............nothing has ever been requested;
  • We call the local utility to see if they have been contacted to locate the services on the land.....................same thing, nothing has ever been requested; and
  • Finally, we ask the engineer who was to do the testing if he ever requested for the municipality or the utility company to go out mark the services. He said that all he did was write up a proposal for the testing and that the borrower never requested him contact the city/utility for them to locate the services on the land before the testing occurs.

Now you tell me, what do you think about this? While our business is far from cookie cutter, transactions tend to follow a certain "normal' sequence of events. When you start getting outside of the sequence, you start getting suspicious. When you start seeing a lot of this stuff, you get good at picking it up, often after a single phone call. The guy we are dealing with now is good, real good.

Most people would not have dug as deep as we have, but unlike most people, I treat every dime as my own. And if that means me digging into my own pocket or not getting a fee on a deal, I'll live with that.

It's a lot easier to lose a bit of income that it is investing capital. Explaining why I didn't pull the trigger on a deal is a much easier conversation that saying "I pissed all of you money away, sorry about that old fella"

While sometimes this has me coming off as overly aggressive and abrasive initially (I don't have the time for people who talk crap), I don't have a problem throwing the baby out with the bath water.


Anonymous Anonymous said...

Transparency and provability are the foundations that you seek in these transactions. Client words have to be 100% consistent with actions. Poking and testing should be expected by the client. It's a **wee bit** less intrusive than a full-bore colonoscopy, so relax, slam your fist on the table and probe away!!

Truth be told, I don't know how you can stomach all this game-playing!!!

- W

1:23 AM  

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