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FREQUENTLY ASKED QUESTIONS
HOW AM I PROTECTED?
Protections are solid. The lender will be given the Deed of Trust to the property and will be first in line for repayment when the property is sold. Loan proceeds are first paid. Remaining proceeds are negotiated if Receiver et al needs to take a discount.
WHAT'S THE RISK?
While the Super Priority lien provides abundant security, there are always some
risks beyond our control. Examples may include the following…
1. Fraud. The risk of fraud is small, but always present.
a. Receiver absconds without remediating property.
b. Receiver fakes Deed of Trust
2.Valuation. There is a risk the property’s valuation is wrong, or prices drop dramatically.
WHAT’S THE DUE DILIGENCE?
Due diligence and subject property value underwriting will be conducted by dual set of project evaluations.
First set of underwriting will be done by the Receiver, a trust officer of the Court. They will determine estimated procurement cost and duration of the assignment. Online valuation services, physical site inspection, title and other lien recording history are all part of the evaluation process. A complete list of project costs, including financing needs are presented. The presiding judge will approve the itemized expense and terms.
Second set of underwriting will be conducted by the managers and staff of Community Improvement Capital, LLC. Given limited time 48 hours to advance funds, the following due diligence items will be reviewed.
Hazardous Site: We will review historical use of the subject property for concern. If further research is needed, phase 1 report will be ordered. Historical lien records of financing will provide further assurance of due diligence by prior lenders.
Title Risk: Although title insurance is not available, Super Priority Lien and Deeds to the subject property will offer superior position to any prior title holders. The judicial order will be a superior instrument compare to title insurance.
Receivership Risk: The Receiver is a court appointed officer who must meet financial and professional guidelines for the position. The Receiver is also required to hold bonds against the performance of the assignment.
HOW DO YOU MITIGATE THE RISK?
The risk of fraud is mitigated by a couple of factors. The first is the fact that the Receiver is an “officer of the court”, typically an attorney who risks disbarment for any misbehavior. The investor would hold the deed to the property, as primary owner of the collateral. The court would still seek remediation of the property. The Receiver and contractors are required to furnish bonding which will insure against a replacement Receiver and contractors to handle the proceedings to remediate the property.
The Due Diligence phase should reduce the risks prior to any transaction. Mechanically, no funds would be transferred prior to having the Deed of Trust secured in the lender’s name.
Valuation would be checked by using comparable properties in the neighborhood. Construction estimates can be validated by utilizing above average construction costs.
There is a risk property values drop precipitously, but the first to take losses would be the equity holder (current owner), and other lien holders below the new lenders priority capital stack.