Ask Nelson about hard money lending

[Nelson]

One more thing to add: Alberta is a non-recourse province, the only one in Canada. So we add a personal guarantee to all our loans, which the lawyer says gives us the right to go after a borrower personally if they don't pay. I'm not sure if it'll hold up in court or not -- the only people we've sued have been on the unsecured side.

 

That is interesting to me. I knew about non-recourse in Alberta (I looked into it extensively when I was buying foreclosures in 2009-2010, as I took on a lot of debt at that time, and wanted to know my downside). I was under the impression the only exception to the non-recourse law was insured mortgages, but if you can put a personal guarantee in that would make me more interested in doing 2nd mortgage lending, especially in this real estate environment.

 

One more question, (sorry!) do you have a third party appraiser you trust or do you form your own opinion of collateral value for real estate?

 

Hey, no problem. It's an interesting business, and I'm happy to talk about it.

 

I just checked the most recent mortgage we did and there's only a passing mention of a personal guarantee. Basically it says this loan is guaranteed by 'x' property and by a personal guarantee from the borrower. Not sure if that's put in there as a scare tactic to make the borrower think they're responsible or what. If it never goes to court and the borrower isn't educated on their rights, I can see how they could be convinced to come up with a shortfall even if they're not legally obligated to.

 

I've always worked under the assumption that if there wasn't plenty of equity in the property, I wasn't interested. The personal guarantee was just more of a margin of safety. Maybe the lawyer was blowing smoke up my ass or I misunderstood. Who knows. 

 

Every now and again we'll ask our Realtor to value a property, but for the most part we just go over and eyeball it. Usually we insist on signing the forms at the borrower's kitchen table just to make sure the house is worth about what we think it is.

[bizaro86]

One more thing to add: Alberta is a non-recourse province, the only one in Canada. So we add a personal guarantee to all our loans, which the lawyer says gives us the right to go after a borrower personally if they don't pay. I'm not sure if it'll hold up in court or not -- the only people we've sued have been on the unsecured side.

 

That is interesting to me. I knew about non-recourse in Alberta (I looked into it extensively when I was buying foreclosures in 2009-2010, as I took on a lot of debt at that time, and wanted to know my downside). I was under the impression the only exception to the non-recourse law was insured mortgages, but if you can put a personal guarantee in that would make me more interested in doing 2nd mortgage lending, especially in this real estate environment.

 

One more question, (sorry!) do you have a third party appraiser you trust or do you form your own opinion of collateral value for real estate?

 

Hey, no problem. It's an interesting business, and I'm happy to talk about it.

 

I just checked the most recent mortgage we did and there's only a passing mention of a personal guarantee. Basically it says this loan is guaranteed by 'x' property and by a personal guarantee from the borrower. Not sure if that's put in there as a scare tactic to make the borrower think they're responsible or what. If it never goes to court and the borrower isn't educated on their rights, I can see how they could be convinced to come up with a shortfall even if they're not legally obligated to.

 

I've always worked under the assumption that if there wasn't plenty of equity in the property, I wasn't interested. The personal guarantee was just more of a margin of safety. Maybe the lawyer was blowing smoke up my ass or I misunderstood. Who knows. 

 

Every now and again we'll ask our Realtor to value a property, but for the most part we just go over and eyeball it. Usually we insist on signing the forms at the borrower's kitchen table just to make sure the house is worth about what we think it is.

 

Thanks!

 

I agree about there not being much downside to putting in the personal guarantee line. I paid for independent legal advice on the subject, but I seriously doubt the average person consolidating debt would even consider it.