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The Power ofThree

Investing in the American Dream

At Residential Capital Partners, we believe that real estate is more than just an investment—it's about making home matter. Whether you're fixing and flipping properties or building a portfolio of long-term rentals, we are your experienced partner in building wealth through real estate. As a balance sheet lender, we offer reliable, consistent, no-money down financing you can count on for your next project. Our proven and simple process allows you to focus on what really matters—turning houses into homes.

Nema Daghbandan, Esq., Lightning Docs

10 “S’s” for Vetting Vendor Partners

Jordan Wilde, JW Partner Solutions

FUND MANAGEMENT

40 Circuit Court Vacates SEC’s New Rules for Private Funds

Jack O’Flaherty, High Divide Management

42 It’s Not Security Theater: Background Check Essentials

Nichole Moore, Geraci LLP

46 Tension, Conflict Are Keys to a Successful Fund

Romney Navarro and Chris Ragland

50 The Power of Three with Constructive Capital

FRAUD

74 Your Best Defense Against Commercial Real Estate Fraud

Megan Castleton, Essencap Funding

ETHICS

80 The Goldilocks Question: What’s “Just Right” for Enforcement?

American Association of Private Lenders

CASE STUDY

82 SoBo Duplex Makeover Pays Off Jake Rome, Backflip Capital

Meet Your Hosts

58 Hyperlocal Due Diligence: A Look at Tampa, FL

Rodney Mollen, RicherValues

64 The Blind Spot

John Adractas, TrustPoint.ai and Tom Hallock, DLP Capital

70 Are Receiverships a Strategic Tool or Overrated Trend?

Gene Buccola, High Plateau Capital

98 A Fresh Take on ‘Who You Know’ Whit McCarthy, Consistent Capital

THE GOLD STANDARD

About Lightning Docs

Lightning Docs offers a fully automated, cloud-based loan document solution.

Its brief, interview-style questionnaire allows each set of documents to be tailored to your exact terms with no redraw fees or contract period.

ARM, interest only, partial amortization, and all other amortization types AND MOST WIDELY USED BUSINESS

Documents available in all 50 states

Easily customizable to fit your needs

Easy to access and copy old files

No redraw fees or contract period

Capital markets approved

Securitization friendly

Many LOS platform integrations

Create any business purpose loan (Bridge, DSCR, fix-and-flip, and many other product types)

LINDA HYDE President, AAPL

KAT HUNGERFORD

Executive Editor

CONTRIBUTORS

John Adractas

Daren Blomquist

Gene Buccola

Arthur Budimir

Megan Castleton

Nema Daghbandan

Michael Fogliano

Matthew Gunter

Tom Hallock

Whit McCarthy

Rodney Mollen

Nichole Moore, Esq.

Sean Morgan

Romney Navarro

Jack O’Flaherty

Chris Ragland

Jake Rome

Kendra Rommel

Jordan Wilde

COVER PHOTOGRAPHY

Pixel Rated Media

PRIVATE LENDER

Private Lender is published quarterly by the American Association of Private Lenders (AAPL). AAPL is not responsible for opinions or information presented as fact by authors or advertisers.

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An Ending, or a Beginning?

Year’s end is characterized as a time of reflection … a slower pace … a moment to catch a much-needed breath. Fall and early winter recall cozy moments by a fire, warm sweaters, and quality time with loved ones.

And yet, as we open the fall season and head into what many consider to be the closing out 2024, it’s the perfect time to share simple advice that has enabled AAPL to grow year over year.

When everyone else is winding down, that’s your cue to start making moves.

To be clear, this isn’t about hustle culture that one-way-ticket to burnout notion that asserts if you just spend X more hours in the office, take Y more calls, and send Z more emails, you’ll open magical doors to greater profits and success.

It’s about using the time you have strategically and wisely, especially when you know what your competition is—or isn’t—doing.

It’s why we host our Annual Conference in November. It’s not the final, largest private lender gathering of the year—it’s the first (still best-attended) industry event heralding collaboration and planning to come.

It’s the time to put pen to paper and formalize casual conversations you’ve had with potential partners. The time to look under the hood of your operations and close the gaps ... to lay the groundwork for new products, a needed pivot, or an exciting new idea.

Ask yourself what your mindset is really like heading into this “closing” quarter. Is this your year end—or your 2025 beginning?

LINDA HYDE President, American Association of Private Lenders PRESIDENT, AMERICAN ASSOCIATION OF PRIVATE LENDERS

Real Estate Investors Protect Profits with Mid-Year Pricing Pullback

Slowing returns on renovated foreclosures provide an early retail market barometer.

DAREN BLOMQUIST, AUCTION.COM

Buyers purchasing distressed properties at auction pulled back on the price they were willing to pay relative to after-repair value (the estimated value of a property in fully renovated condition) starting in May 2024 and continuing through July 2024.

This marked a distinct shift following five consecutive months during which the average price-to-value ratio at auction increased (see Fig. 1). This shift indicates the local community developers, who are the biggest buyers at auction according to the 2024 Auction.com Buyer Insights

Report, started becoming less confident in future home price appreciation in their local markets in May. That deteriorating confidence has continued for three consecutive months. Buyers are in effect hedging their bids at auction to protect their future profits when a renovated property

purchased at auction is sold (flipped) or rented back into the retail market—typically about three to six months after the auction.

“The right house on the right street is selling no problem, but also the wrong house on the wrong street is not selling,” said Lee Kearney, CEO at Tampa, Florida-based SPIN Companies, which buys and renovates distressed properties. “In the suburbs, where every house is the same, the inventory is rising there, and people are discounting if they want to be the first one to sell.”

RISING RETAIL INVENTORY, LOWER BID-TO-VALUE RATIO

Nationwide, the inventory of existing homes for sale increased to a 44-month high of 1.32 million in June, according to data from the National Association of Realtors (NAR).

The months’ supply of homes for sale increased to a 49-month high of 4.1 months in June—the highest since May 2020.

Inventory is increasing even faster and rising above pre-pandemic levels in some markets, including Tampa. According to data from Realtor.com, the total inventory of homes for sale in the Tampa-St. Petersburg-Clearwater metro area increased 43% from a year ago in July to 22,913—the highest level since July 2019. The median days on the market in the Tampa metro area was 59 days in July, up from 46 days in July 2023 and on par with an average of 59 days for all of 2019.

The rising inventory and increasing discounts in the retail market are giving local investors in Tampa pause when buying distressed properties at auction. Among properties sold at a foreclosure auction in the Tampa metro area in July, the winning bid was 70.8 % of the property’s estimated “after-repair” value on average, down from 71.4 % in June and down from 82.8% in July 2023, according to proprietary data from Auction.com, which accounts for close to 50% of all foreclosure auctions nationwide (see Fig. 2).

The 70.8% average price-to-value ratio in July was the lowest average price-to-value ratio for the Tampa metro area since May 2015, a more than nine-year low. Although demand from buyers at distressed property auctions in Tampa remains strong—more than 70% of the properties available for auction in July sold to third-party buyers— the price those buyers are willing to pay relative to after-repair value is dropping.

Tampa is not alone in this trend, although the trends there are more pronounced than in many other markets. Nationwide, the average bid-to-value ratio for properties sold at foreclosure auction in July was 56.8%, down from 58.7% in the previous month to an eight-month low. The decrease in July marked the third consecutive month with a decrease after the average

price-to-value ratio peaked at a more than two-year high of 60.7% in April 2024.

STRONG DEMAND, CONSERVATIVE BIDDING

As in Tampa, demand is still strong for distressed properties nationwide. Fiftyfive percent of properties available for auction in July were sold to third-party buyers, up from the previous month and a year ago. Properties brought to auction in July received an average of 38 saves from prospective buyers on Auction.com. That was down slightly from an average of 39 saves per property in June but up 20% from an average of 32 saves per property in June 2023.

But even with strong demand, bidders at foreclosure auctions are pulling back on pricing at a time of the year when pricing is typically flat or even increasing. In 2023, the average price-to-value ratio at foreclosure auction peaked in June and July at around 60% before gradually declining in the latter

part of the year. And in 2019, the average price-to-value ratio held steady at between 60% and 61% from April through the rest of the year, after peaking at 62% in March.

The typical seasonal pricing pattern was also disrupted back in 2022, when mortgage rates ratcheted up rapidly in the second half of the year, sending shockwaves through an arguably overheated retail market. Buyers at foreclosure auction anticipated those shockwaves and started pulling back on pricing starting in March 2022. The average price-to-value ratio at auction peaked for the year in February at nearly 67% and steadily declined from there, ending the year at 51.8%.

RENOVATED RESALES A RETAIL MARKET BAROMETER

To understand why local community developers buying at distressed property auctions pay such close attention to retail market trends and often anticipate retail

market trends, it’s helpful to look at data for renovated properties resold (flipped) after being purchased at auction. That renovateand-resell data demonstrates how emerging weakness in gross profits and time to sell a renovated property allows these local community developers to be among the first to spot—and respond to—emerging weakness in the retail market (see Fig. 3).

More than 400 renovated properties that had previously been purchased at foreclosure auction via Auction.com were resold in June 2024, according to an analysis of public record data matched against Auction.com data. It took local community developers an average of 192 days to renovate and resell those properties

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after the foreclosure auction, unchanged from May, but up 10 days from 183 days for renovated foreclosures sold in June 2023 and above the long-term average of 188 days.

The average days to renovate and resell properties purchased at foreclosure auction increased in the second quarter of 2024 compared to a year ago in 25 of the 40 top metropolitan statistical areas with the most volume. The biggest increases were in St. Louis, Missouri (up 64 days); Las Vegas, Nevada (up 57 days); Peoria, Illinois (up 52 days); Austin, Texas (up 48 days); and Virginia Beach, Virginia (up 32 days). Tampa had the ninth biggest increase, up 23 days.

Every extra day to renovate and resell equates to higher holding costs, which erode the returns of local community developers. The longer timeline also keeps more investor capital tied up and unavailable for new projects.

Although the data does not include holding and rehab costs, the gross returns—the percent return based on the difference between the purchase price at the auction and the resale price—also demonstrate emerging weakness for renovated foreclosures resold in June 2024. The average gross return was 54.6% in June, down more than 400 basis points from 58.7% in May and 59% in June 2023. Preliminary data from July shows gross renovate-and-resell returns averaging 49.7%, which would be another 500 basis-point drop from June.

The lower returns for the renovated properties being sold now—and purchased about six months ago—means investors have less capital to deploy for their next renovate-and-resell project. It also likely increases their risk aversion, leading to more conservative bidding at the auction.

“I don’t want to catch a falling knife at this point,” said Paul Lizell, a Florida-based

“ The gross returns also demonstrate emerging weakness for renovated foreclosures resold in June 2024.”

real estate investor who also trains other investors to buy properties at bank-owned (REO) auctions through REO Auction Academy. “I only want the lowest hanging fruit. I don’t mind doing less deals.”

TIGHTER PATH TO PROFITS

The compressing returns on renovateand-resell projects are creating an even tighter path to profits for many local community developers who have pivoted away from renovate-and-rent as an investing strategy in recent years because elevated mortgage rates have made it more difficult to achieve desired cash flow and cap rates on rental properties.

“We’ve seen a huge drop in people who are holding properties as rentals,” said Landon Cunningham, owner of Spokane, Washington-based Inland Capital, a private lending company that specializes in lending to investors buying at a foreclosure auction in Washington, Idaho, and Oregon.

Cunningham estimated that half of his investor borrower clients were employing the renovate-and-rent strategy three years ago. He estimates only about 20% are doing so now. He also noted that the buy box for the renovate-and-resell strategy has narrowed in the Pacific Northwest markets he operates in due to a slowing retail market at the higher end.

“Anything that’s below $700,000 is moving pretty quick, but anything that is double the median price point has really slowed down,” he said. “That mid-range is still moving pretty quick.

DAREN BLOMQUIST

Blomquist is vice president of market economics at Auction.com.

In this role, Blomquist analyzes and forecasts complex macro and microeconomic data trends within the marketplace and greater industry to provide value to both buyers and sellers using the Auction.com platform.

Blomquist’s reports and analysis have been cited by thousands of media outlets nationwide, including all the major news networks and leading publications such as The Wall Street Journal, The New York Times, and USA TODAY. He has been quoted in hundreds of national and local publications and has appeared on many national network broadcasts, including CBS, ABC, CNN, CNBC, FOX Business, and Bloomberg.

Daren

Southeast Takes Lead, Outpaces Longtime Heavyweights

Although still below the highs of Spring 2022, the private lending market has shown signs of recovery in the first half of 2024.

MICHAEL FOGLIANO AND SEAN MORGAN, FORECASA INTELLIGENCE

In aggregate, the private lending market still isn’t near its spring 2022 highs, but it has been gaining steam through the first half of 2024. When removing loans greater than $5 million, the private lending industry has originated nearly $50 billion in the first two quarters of 2024. May 2024 was a high watermark for private lending originations since June 2022, recording more than 21,000 transactions. That trend did not continue in June 2024—the industry saw a 16% contraction. That being said, Forecasa does expect July 2024 to rebound from the lull in June (see Fig. 1).

As you can see in Figure 2, non-private (conventional lending) has followed the same trend as private lending throughout the first half of 2024. Non-private lending has

a more significant gap to close versus private lending but is moving in the right direction. As interest rates continue to decline, Forecasa expects this trend to continue.

BIGGEST MARKET MOVERS

Forecasa evaluated the private lending originations in all major MSAs. The information below highlights the areas with the largest increases and the largest decreases in total number of private lender originations from yearto-date 2024 versus year-to-date 2023.

Largest Gains

1 Birmingham-Hoover, AL (76%)

2 Macon-Bibb, GA (72%)

3 Montgomery, AL (61%)

4 San Diego, CA (42%)

5 Spartanburg, SC (42%)

6 Winston-Salem, NC (40%)

7 Mobile, AL (36%)

8 Chattanooga, TN (33%)

9 Myrtle Beach, SC (32%)

10 Stockton-Lodi, CA (32%)

Largest Losses

1 Spokane, WA (-28%)

2 Killeen-Temple, TX (-28%)

3 Atlanta, GA (-24%)

4 New Orleans, LA (-24%)

5 Tucson, AZ (-19%)

6 Baltimore, MD (-18%)

7 Dayton, OH (-18%)

8 Port St. Lucie, FL (-18%)

9 New Haven, CT (-17%)

10 Indianapolis, IN (-15%)

FIGURE 1.  PRIVATE LENDING AND NON-PRIVATE MORTGAGE ORIGINATION VOLUME, JANUARY-JUNE 2024 VS. MARCH 2022

The Southeast region of the country showed the highest number of gainers followed by California. Outside of San Diego, the remaining MSAs with the largest gains were Tier II and Tier III markets. Among the MSAs that saw the largest losses, four of them were Tier I markets—Atlanta, New Orleans, Baltimore, and Indianapolis.

PRODUCT MIX ANALYSIS

Forecasa has identified more than 6,200 private lenders originating mortgages since 2021. Although these lenders are all classified as private lenders, they are not all the same. They offer different products, originate in different areas, target different customer bases, and have different capital market strategies.

Since 2021, private lending has trended to be mostly short-term loans (i.e., originations with a maturity of five years or less). In the first two quarters of 2024, 59% of loans originated were short term (see Fig. 3). However, there is still a minority of lenders that remain focused on long-term loans. In 2024, 11 % of the active private lenders originated long-term loans exclusively, and 23% have originated some number of long-term loans. There has also been an increase in long-term DSCR loans being offered by more traditional nonQM lenders like NewFi, A&D Mortgage, United Wholesale, and others.

AVERAGE MORTGAGE AMOUNT

Figure 4 shows the average mortgage amount of loans by quarter by term. Longterm loans typically have smaller average mortgage amounts as there is limited/no construction budget built into the loan. It also makes sense that the longer-term loan average has dropped as lenders pull back on leverage ratios. Short-term average loan amounts have remained relatively flat.

PRIVATE LENDING LOAN PERFORMANCE

To measure private lending loan performance, Forecasa has started tracking negative remarks (notice of defaults, notice of trustee sales, lis pendens, foreclosures) filed by private lenders compared to private

lending originations. As Figure 5 notes, this ranges from 4.12% to 5.05%, with an overall of 4.64% for year-to-date 2024. Private lending loan modifications in the first two quarters saw a slight increase (<5%) when compared to the first two quarters of 2023.

Michael Fogliano is a product manager at Forecasa, responsible for product development and data analysis. After studying mathematics, Fogliano gained experience in several industries, always working with complex data.

SEAN MORGAN

TO ORIGINATIONS

Sean Morgan is the founder and CEO of Forecasa, where his primary focus is product and business development. He has experience in oil and gas intelligence, and he began his career as a CPA for PwC, cultivating a strong foundation in data interpretation and strategic insights.

FIGURE 5. 2024 PRIVATE LENDING NEGATIVE REMARKS COMPARED

MICHAEL FOGLIANO

State of the Industry: Bridge Loan, DSCR Tradeoffs

Ahead of forecasted Fed rate reductions, are private lenders jumping the gun with market shifts and rate changes?

NEMA DAGHBANDAN, ESQ., LIGHTNING DOCS

Lightning Docs is a software private lenders use to generate their short-term loans (bridge, fix-and-flip, construction, etc.) and rental loans (DSCR) loan documents.

During the last six years, Lightning Docs has been used for more than 73,000 loans totaling over $38 billion in loan origination, including more than half the top 50 private lenders across the country. In August 2024, there were a total of 3,736 loan transactions totaling almost 2 billion in origination. All the transactions are done by private lenders, providing unique transparency for an otherwise homogenous group.

BRIDGE LOAN VOLUME ON THE RISE

Rather than segmenting according to loan type (i.e., fix-and-flip, nonconstruction bridge, residential transition loans, etc.), we specifically track any loans with a duration of fewer than 36 months and classify them as “bridge loans.”

A question many lenders want to benchmark and understand is their yearover-year and month-over-month loan volumes. For these purposes, we tracked the bridge loan volume of a cohort of 123 unique users. When comparing bridge loan volumes from Jan. 1-Aug. 31, 2023, to the same period during 2024, the volume of short-term loans increased by a significant 30% across those 123 users (see Fig. 1). The increase in volumes represents a real growth in the number of transactions, not simply an expanded share of the market, making for a remarkably better year so far.

A SLIGHT DECREASE IN BRIDGE LOAN INTEREST RATES NATIONALLY

Over the year, average bridge loan interest rates dipped slightly, from 11.53% in January 2024 to 11.12% in August 2024 (see Fig. 2). Loan amounts have generally been consistent, ranging from around $550,000 to $650,000. (When determining average loan amounts, we intentionally exclude loan amounts below $50,000 and above $5 million.)

When the data is segmented out by individual interest rates, 80% of short-term loans fall within 10.0% to 12.99%, based on an analysis of 2,092 loans that were generated in August. About a tenth of the loans were under 10% and nearly an equal proportion were over 12.99% (see Fig. 3).

FIGURE 4. MOST ACTIVE BRIDGE STATES BY VOLUME

FIGURE 5. MOST ACTIVE BRIDGE COUNTIES BY VOLUME

FIGURE 6. ACTIVE BRIDGE COUNTY RATE VOLATILITY

GEOGRAPHIC TRENDS

In terms of loan activity, California, Florida, and Texas continue to hold the top three spots, in the same order, from 2023 to 2024, with some minor shifts in the other top 10 states (see Fig. 4).

When looking for deeper geographic trends, we see that Los Angeles and San Diego counties are in first and second place, respectively, and Orange County is fourth among the top 10 most active. California dominates with four counties

among the most active, outshining Texas, which has only one county (Dallas) that makes the top 10 nationally (see Fig. 5).

SIGNIFICANT LOCAL INTEREST RATE VOLATILITY

It is no surprise that in an industry that built its reputation as “local lenders servicing local real estate investors,” there can be significant volatility and differentiation of interest rates at the local market level. Although California is often believed to

be a lower interest rate environment than states such as Texas and California, looking at the monthly data busts that myth. California not only tends to have higher average interest rates but also generally commands higher loan amounts due to increased property prices providing lenders with great opportunities (see. Fig. 6).

DSCR NATIONAL LOAN PERFORMANCE

Many private lenders now also offer Debt Service Coverage Ratio (DSCR) loans. Unlike bridge loans, DSCR loans

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have a duration of 30 years and are almost exclusively sold to insurance companies and loan securitization parties; the primary value to the originator is receiving a gain on the sale of the loan.

We tracked 31 unique users in 2023 compared to 2024 (see Fig. 7). Their volumes increased 34%, comparing their volumes from Jan. 1-Aug. 31, 2023 and 2024, which was slightly better than bridge loan volume growth. The trend lines for interest rates followed a similar pattern to those for bridge loans: The average

interest rate has slid from 8.30% to 7.93% from this past January to June. However, each month after has seen drops of almost 30 basis points in July and August, with average rates in August at 7.38%, almost a full 100 basis points less than January of this year. Average loan amounts have varied between around $250,000 to $290,000.

Until recently, unlike bridge loans (which have significant local rate volatility), DSCR loans and their secondary market functionality tended to be more homogenous in their average interest rate

offerings, regardless of geography. However, with the significant shift in DSCR rates in July and August 2024, there is much more rate volatility than previously seen. In August 2024, 76% of loans were between 7.0%-8.99%, but a significant 23% of loans are now 6.99% or below (see Fig. 8).

There is significant opportunity in DSCR lending, which is demonstrated by loan volume increases as well as the interest rate movement in the right direction, which will translate into refinancing activity.

FIGURE 9. TOP RENTAL STATES BY VOLUME

Pennsylvania Pennsylvania

Texas Florida

Florida Ohio

New Jersey Texas

Georgia New Jersey

Illinois Illinois

New York North Carolina

North Carolina Califnornia

Maryland Georgia

Indiana New York

FIGURE 10. TOP RENTAL COUNTIES BY VOLUME

2023

Cook, IL

Philadelphia, PA Cook, IL

Essex, NJ Cuyahoga, OH

Baltimore, MD Essex, NJ

Franklin, OH St. Louis, MO

Harris, TX Harris, TX

Cuyahoga, OH Wayne, MI

Duval, FL Miami-Dade, FL

Dallas, TX Baltimore, MD

Bexar, TX Bexar, TX

“Originators will not want to ‘leave money on the table’ by making loans below 11% in most major metros.”

STATE AND LOCAL DSCR TRENDS

Through August 2024, Pennsylvania has held on to the top spot for rental loan activity. Florida has jumped to second from third, with Ohio in third from fifth, as compared California, Georgia, and New York are all in the top 10 states (see Fig. 9). None of them were in 2023, demonstrating that when DSCR rates move, the geographies where deals can pencil do too.

As you can imagine, activity at the county level is also highly volatile for DSCR lending because the interest rate environment moves more rapidly. Some notable movement is St Louis, Missouri, moving up 22 spots from 2023. Cuyahoga, Ohio, moved up four spots, while Baltimore, Maryland, moved down five spots (see Fig. 10).

KEY TAKEAWAYS

With the Fed indicating they will lower interest rates, the market has already chosen to react, mainly through the reduction in the 10-year treasury rate, which is used as a benchmark for many forms of financing. This pass-through has already started to trickle directly into the DSCR rates resulting in a significant jump in DSCR loan production. Meanwhile, understanding the dynamic nature of their local markets is imperative for bridge lenders. Originators will simultaneously not want to “leave money on the table” by making loans below 11% in most major metros, but in certain circumstances, they could be getting priced out by the competition.

Daghbandan, Esq. is the founder and CEO of Lightning Docs, a proprietary cloud-based software that produces business-purpose mortgage loan documents nationally. Lightning Docs is the official loan documents of the American Association of Private Lenders. The documents are considered the gold standard for business-purpose loan documents. As a real estate finance attorney and partner at Geraci LLP, the nation’s largest private lending law firm, and the general counsel of AAPL, Daghbandan has unique expertise in understanding the needs of private mortgage lenders.

For more information about Lightning Docs, visit lightningdocs.com.

NEMA DAGHBANDAN, ESQ.

Nema

Dare to be... TM

Brokered Loan Modifications Race to the Finish Line

Here’s what the Moon case and its aftermath mean for the future of brokered loans in California.

MATTHEW GUNTER, GERACI LLP

In the Summer 2024 issue of Private Lender, we shared a brief history of usury law in California (the limitations on interest rates charged on business-purpose loans). Since writing that article, there have been exciting new developments in this space. Although the fight in the courts had long since passed, the effort shifted to the legislature. We can now announce that these efforts succeeded: The bill has become law! Slated to take effect on Jan. 1, 2025, the law will impact your current and future loans.

WHERE WE WERE

Generally speaking, California caps the interest rate for all loans at 10%, though

licensed lenders (typically California Finance Lenders, or CFLs) and licensed real estate brokers who are licensed through the California Department of Real Estate enjoy a complete exemption from this limitation.

It had long been thought that the usury exemption carried over to modifications or extensions of the original loans. However, through a series of court decisions, known as “In re Moon,” the broker exemption was limited to just the original term of the loan.

WHERE WE ARE

After these court decisions—but prior to the effective date of the new law—moving forward with an extension of a brokered loan requires a significant and thoughtful

analysis as to whether any additional exemptions may apply. Loans made by a licensed DRE broker remain exempt, even when the loan is extended. Loans made by a licensed CFL lender remain exempt, even when the loan is extended.

The major change is now for loans arranged by a licensed DRE broker to a lender who is not otherwise licensed. These brokerarranged loans are still exempt from the usury law at the time they are made, but only for the original term of the loan. An extension of the time to pay, which includes formal modification agreements, forbearance agreements, or even less formal agreements to defer payment or to delay a foreclosure date, may all qualify

as an extension or forbearance that may cause the loss of the exemption.

Certainly all new loans originated after Jan. 1, 2025 (when then new law takes effect), and any future modification of such loan will be subject to its provisions. However, it is impossible to truly answer the question as to what happens to existing loans originated before this date but may have modifications after it. The law does not provide for any retroactivity; thus, loan modifications that have already occurred would not be subject to the new law. However, new modifications on existing loans may be able to take advantage of the new law.

FURTHER READING

Consult an attorney for any specific scenario involving usury in California. Potential workarounds exist, and an experienced attorney can help guide you through which ones may apply to your situation.

AFTERMATH

Getting this bill passed was not the work of a single person or organization. A special thanks goes out to the California Mortgage Association, which pressed the legislators on this with us. We thank every one of our AAPL members, especially those who submitted letters, called their representatives, or

aaplonline.com/california-sb1146/ Modifications to CA Civil Code Needed After Court Ruling

aaplonline.com/moon-ruling/

donated to the cause. Grassroots efforts like this one are a fantastic example of what makes our organization great.

AAPL has worked on this bill throughout its fast-tracked life in the legislature. It will continue to do so should there be a need.

MATTHEW GUNTER

Matthew Gunter is a senior attorney on the Lightning Docs team. His work focuses on building the business-purpose mortgage loan documents that form the backbone of the Lightning Docs system as well as maintaining the system for nationwide legal compliance and specific client requests.

Gunter also serves as the ex officio member of AAPL’s Government Relations Committee, a role in which he serves to bolster relationships with regulatory jurisdictions and to help ensure regulations are limited and reasonable.

RE: Letter in SUPPORT of Senate Bill 1146 –Civil Code 1916.1 in Need of Modification in light of a Recent Court Ruling

Dear Governor Newsom,

We write to you today to express our strong support for your signing of Senate Bill 1146. This bill will save property owners’ ability to obtain loan modifications from their lenders ever since a series of poor judicial decisions narrowly interpreted the existing statute. We urge you to support and sign SB 1146 in order to right this wrong and clearly state the legislature’s purpose is to protect the availability of loan modifications. This bill passed through the consent calendar and has virtually unanimous support.

American Association of Private Lenders (AAPL) is an association of non-depository lending organizations who make non-consumer loans secured by real estate throughout the country. AAPL’s mission is to advocate on behalf of private lenders and set best practices for its members.

AAPL’s members primary focus is providing financing to real estate investors who seek to add value and density to existing housing stock, and the development of new housing stock. Real estate investors seek private lenders in these circumstances as most depository institutions are unable or unwilling to provide short-term financing options to real estate investors who may need to commit significant capital improving the property to make it inhabitable or otherwise increase the density of the property, typically requiring significant construction. AAPL members are quite active in the state of California with many members headquartered in the state and more than 16,000 mortgage loan transactions by private lenders in 2023 totaling more than 5 billion dollars in loans provided to residents of the State.

Article XV of the California Constitution generally limits the interest rate for loans to 10% per annum. An exemption in the Constitution is given to any loan secured by real property which is made or arranged by a licensed California real estate broker; further codified and expanded upon under California Civil Code 1916.1. This constitutional and statutory exemption is critical, particularly in today’s high interest rate environment as private lenders take on significant risk when providing financing for construction loans. Lightning Docs, LLC a loan document system for private lenders, ran an analysis of 3987 private loans ($2.4BN of loans) in California from January 1, 2023 to March 31, 2024 with an average interest rate of 11.08%.

However, when the legislature amended this statute in 1985, they made an odd but unique distinction between arranging a new loan and modifying or forbearing an existing loan. Recently, a 9th Circuit ruling in the case of In Re Moon reviewed this statute. The case involved a loan which was arranged by a licensed real estate broker and therefore exempt from usury. The lender subsequently modified the loan and reduced the interest rate. The court determined that the modification which reduced the interest rate made the loan usurious.

The Court’s decision is based on Civil Code Section 1916.1 which states in pertinent part: “…Article XV of the California Constitution shall not apply to any loan or forbearance made or arranged by any person licensed as a real estate broker by the State of California, and secured, directly or collaterally, in whole or in part by liens on real property. For purposes of this section, a loan or forbearance is arranged by a person licensed as a real estate broker when the broker:...(1) acts for compensation or in expectation of compensation for soliciting, negotiating, or arranging the loan for another…(3) arranges or negotiates for another a forbearance, extension, or refinancing of any loan secured by real property in connection with a past transaction in which the broker had acted for compensation or in expectation of compensation for selling, buying, … of real property….”

The Court read the first subdivision as pertaining only to “loans” and thus not forbearances or extensions, and the only time a forbearance or extension would be exempt from, the purchase and sale broker has nothing to do with the financing of the property. Moreover, even if they did, it does not usury would be when it was arranged by a licensed broker who was involved in the purchase or sale of the property. As a preliminary matter it doesn’t make any sense to require the original broker to the purchase or sale to be involved as that person may have retired, deceased or otherwise unable or unwilling to be involved.

We believe the intent of the legislature was to create a usury exemption for any loan, extension, or forbearance which is arranged by a licensed real estate broker. Unfortunately the existing language has proven to be ambiguous. Accordingly, we agree that the simple amendment to the statute through Senate Bill 1146 would match with the California Constitution and the actual intent of the legislature.

The effect of these court rulings has sent shockwaves through the community. Until and unless Civil Code 1916.1 is modified, lenders are unfortunately in a position where they are no longer able to modify their loans without risking making them usurious. Mortgage lenders should be encouraged to modify and otherwise forbear on loan obligations as the alternative would be to foreclose on their borrowers which is a loselose for the borrower and the lender which cannot reasonably be the intent of the legislature.

Sincerely, Eddie Wilson, Chairman, AAPL; Linda Hyde, President, AAPL; Nema Daghbandan, AAPL General Counsel, Geraci LLP

Liquidity Matters

We’re seeing early indicators of a shakeup over cash-poor private lenders. Now’s the time to secure your reserves.

KENDRA ROMMEL, FUTURES FINANCIAL

Liquidity refers to the liquid assets available to a lender; basically, how easily and quickly they can access cash or cash equivalents to meet their short-term obligations. For a lender, maintaining liquidity is critical for several reasons.

First, it impacts operational efficiency. Lenders need cash on hand to fund new loans and cover operational costs. Insufficient liquidity can disrupt the ability to process and fund loans efficiently.

It is important to consider, for example, how insufficient lender liquidity could directly impact borrowers. A lender with liquidity issues might struggle to process and fund new loans promptly, leading to delays in disbursing funds as it pertains to rehab or construction draw requests.

This disruption could result in borrowers waiting longer than expected for their reimbursement of project costs/outlay, potentially causing them to miss important deadlines or financial opportunities. If the lender’s liquidity issues become severe, they may be forced to impose a stricter credit box, terms, or higher interest rates, further affecting borrowers’

access to affordable financing. The worst case is if the lender becomes completely insolvent, forcing them out of business, leaving existing borrowers without the ability to access or control funds and borrowers with closing deadlines scrambling to find a new lending partner.

Second, adequate liquidity allows lenders to manage risk better by providing a buffer against unexpected financial stress or market fluctuations.

Third, regulatory compliance is another reason liquidity is important. Some states that require lenders to maintain a license to transact certain types of loans may also require a minimum net worth. For example, California finance lender licensees must have a net worth of $25,000. An Arizona mortgage bankers license requires $250,000. Although this is not, strictly speaking, business liquidity (currently, there is no such stipulation), lenders should be aware of any analogous conditions.

Fourth, lenders with strong liquidity can take advantage of market opportunities, offer competitive rates, and react swiftly to changes in demand.

LIQUIDITY, RISK, AND LOAN BUYBACK ISSUES

Different types of lenders interact with liquidity in various ways, each facing unique challenges and risks. Let’s look at each type of lender in terms of liquidity needs and risks.

MORTGAGE LOAN BROKER AND THIRDPARTY ORIGINATOR (TPO). Mortgage loan brokers and TPOs typically do not fund loans themselves. Instead they facilitate the process between borrowers and lenders; therefore, their liquidity needs are less about having cash to fund loans and more about maintaining enough capital to manage operational expenses and potential contingencies.

Brokers and TPOs rely on their partner lenders to provide the necessary funds. Hence, their liquidity impact is somewhat indirect; however, their ability to operate effectively can be influenced by the liquidity of the lenders they work with.

Since brokers and TPOs typically do not fund loans themselves, their risk is more about ensuring that the loans they originate are sold to lenders without issues. However, they may face reputational risks if the loans they originate are problematic.

CORRESPONDENT LENDER AND TABLE FUNDER LENDER. Correspondent lenders and table funders either use a larger lender’s funds or provide their own capital at closing and then sell the loan to larger investors or aggregators. They need to maintain liquidity to fund loans before they can sell them, manage operational costs, and handle any delays in selling the loans.

If a correspondent lender struggles with liquidity, they might face challenges in funding loans promptly, which can affect their relationships with brokers and borrowers.

Correspondent lenders and table funders are at risk if they are unable to sell the loans quickly or the risk of loan buybacks if the loans they sell to investors do not meet the agreed-upon criteria or have underwriting deficiencies. Liquidity problems can exacerbate this risk if they struggle to handle buybacks financially or manage loan portfolios effectively.

DIRECT LENDER, BALANCE SHEET LENDER, AND WHOLE LOAN SELLER (GAIN ON SALE).

Direct lenders use their own capital to fund loans and hold them on their balance sheet until they are sold or repaid. They need significant liquidity to fund loans directly and manage their balance sheet effectively.

Direct lenders with robust liquidity can manage their loan portfolio better, offer competitive terms, and absorb market shocks. Conversely, those with liquidity problems might struggle with loan funding and servicing, potentially impacting their market position.

Direct lenders who sell to secondary markets or aggregators face the risk of buybacks if the loans they originate have underwriting or compliance issues. High liquidity can help mitigate this risk by allowing the lender to manage the impact of buybacks better, whereas liquidity constraints can make buybacks more financially stressful.

WHOLE LOAN PURCHASER. Whole loan purchasers buy entire loans from other lenders or correspondents. They need liquidity to acquire loans and hold them until they are securitized or otherwise monetized.

For whole loan purchasers, liquidity is crucial for making timely purchases and managing their loan portfolio. Insufficient liquidity can hinder their ability to acquire new loans and affect their operational efficiency.

Whole loan purchasers are at risk if the performing loans they buy default or experience other quality issues. Subject to the contract between the purchaser and the original lender, the original lender may be required to buy back the loan. If the original lender is unable or unwilling to complete the buyback or the loan falls outside the buyback parameters, the purchaser may incur extensive legal fees and other costs. Additionally, there may be risks associated with a nonperforming loan that is packaged in a securitization or other secondary market resales. Adequate liquidity is essential for managing such risks and absorbing any financial impact.

INSTITUTIONALLY BACKED LENDERS VERSUS BALANCE SHEET LENDERS

Institutionally backed lenders, who often handle large volumes of loans, face unique challenges.

Institutionally backed lenders typically have access to significant capital and can handle high volumes. However, the pressure to maintain liquidity (e.g., institutions may require lenders to have “skin in the game” against what they are willing to advance) and meet volume targets can lead to increased risks if they fail to manage underwriting standards or if market conditions change rapidly.

Balance sheet lenders, on the other hand, are lenders who rely on their own balance sheets and, therefore, may have fewer volume pressures but still need significant liquidity to manage their loan portfolios. They might face less immediate pressure but must manage their liquidity and risk exposure carefully to ensure long-term stability.

MISIDENTIFICATION OR IRRESPONSIBLE MARKETING

There are potential harms when lenders inaccurately market themselves as direct lenders using primarily their own in-house capital while maintaining little direct liquidity.

MISINFORMATION AND TRUST ISSUES.

If you market yourself as a direct lender but are primarily using third-party capital, borrowers may be misled about the stability and reliability of your lending operations. This can erode trust in your business and, more broadly, in the lending community as a whole.

IMPACT ON BORROWERS. When borrowers believe they’re dealing with a direct lender, they might expect a higher level of service and financial stability. If you’re actually dependent on external capital, you might face challenges in meeting these expectations, especially if there are delays or issues with the funding source.

INCREASED RISK OF DISRUPTION. Relying heavily on external capital with little of your own liquidity can make your operations vulnerable to disruptions if your funding sources face issues or withdraw support. This can lead to sudden changes in loan terms, delays, or even the inability to honor commitments, harming borrowers and potentially damaging your reputation.

REGULATORY AND LEGAL RISKS. Funds that sell loans should be aware they have an obligation to disclose that they may sell loans. That being said, currently, there are otherwise no requirements to disclose to whom funds sell loans or how much of their capital originates from external sources.

LONG-TERM INDUSTRY IMPACT. If such practices become widespread, they can undermine confidence in the private lending industry as a whole. Borrowers and investors may become wary of lending institutions, which could hinder the growth and stability of the industry. Accurate representation and transparency are crucial for maintaining the integrity and trustworthiness of the lending sector.

In summary, inaccurately marketing yourself as a direct lender when you’re reliant on external capital can lead to trust issues, borrower dissatisfaction, operational risks, regulatory challenges, and long-term damage to the industry’s reputation. For the betterment of the lending community,

it is imperative we responsibly brand and act authentically in accordance with who we are and the degree to which we are capitalized to support our credit decisions.

LIQUIDITY AND ACCOUNTABILITY

Although there isn’t an industry standard, “go-to” formula, or calculation on sufficient liquidity against obligations, you should proactively consider inquiring with both current and anticipated banking, credit facility, and/or family office relationships you may have on what liquidity reserves versus overall loan volume they recommend or are most comfortable with. The key is to remain humble and mindful that growth or scalability should not trump

AAPL membership is the standard of excellence among private lenders and the foundation supporting the industry’s viability and growth.

Join the oldest and largest association providing for private lender education, ethics, and advocacy at aaplonline.com/join.

careful planning against risk. With any growth, the risk increases, so regularly recalibrating your “worst-case” scenario can help ensure you are not caught unaware even during periods of rapid scale.

Ask yourself: Am I prepared to buy back, hold, and service more than X% of my ill-performing portfolio? If the answer is no, you should prioritize raising more capital or capping your volume to where you can preserve your business and reputation despite losses.

For those more on the reactive side, there are some notable signs of liquidity imbalance. Increased delays in processing

or funding your loans, tightening loan terms or raising interest rates, a drop in loan quality or an uptick in defaults, or frequently needing to access emergency funding or sell assets at a loss all indicate liquidity concerns are impacting your overall operations and accountability.

Liquidity is a fundamental aspect of lending, affecting various types of lenders in distinct ways. Each lender business faces unique liquidity-related challenges and risks, especially concerning loan buybacks. Institutional pressures and balance sheet constraints also play a significant role in managing liquidity and

maintaining accountability. Understanding these dynamics is essential for lenders to navigate their operational environments effectively and manage the inherent risks of the lending industry.

Beyond these considerations, we also need to continue having open conversations around liquidity, accountability, and what best practices look like. Up to this point, it’s been every lender for themselves, but it doesn’t have to be, nor should it be, as the stakes grow higher and potential negative outcomes increase if lenders continue originating volume absent of adequate checks and balances.

Kendra Rommel is the principal and cofounder of Futures Financial. She began her career at the tail end of the savings and loan crisis in the 1990s, where she was a loan officer for Coast Security Mortgage at 17 years old. Rommel spent many successful years working in operations as a processor, funder, post closer, and operations manager in organizations throughout Orange County, California. In 2009, she undertook a sixyear role as asset manager at Kondaur Capital. She has spent the last 12 years in asset management, capital markets, and private lending.

Rommel holds multiple state originator’s licenses and regularly attends events to stay at the top of her industry.

KENDRA ROMMEL

BUILD YOUR BUSINESS. FIND YOUR TEAM.

Whether you’re looking to hire or find your next professional home, our newly-launched Jobs Board can help your search.

AAPL Members may post unlimited jobs at no cost. Use our portal to take applications, or link your job to anywhere on the internet.

(There’s no AAPL account required to search or apply for jobs.) Get started today!

Bulletproof Your Business Blueprint

A brand will sell itself if you build it from the inside out.

ARTHUR BUDIMIR, CONSTRUCTIVE CAPITAL

As the old business adage goes, “Sell a product that can sell itself.” Talk about an infallible business plan!

If it’s that simple, then as private money lenders, we have the easiest business-in-abox, done-for-you blueprint in the world. After all, we offer money as our product,

Although the saying sounds catchy and seems simple enough on paper, we know the hard truth: When cultivating and sustaining a thriving business in this hypercompetitive industry, you need something a bit more strategic than a “money will sell itself” business plan.

CREATE A BRAND THAT CAN SELL ITSELF (INSIDE AND OUT!)

Putting together a bulletproof business blueprint requires two foundational challenges. The first is crafting an identity. Crafting your identity is called brand building. Nothing is more fundamental and foundational to your business plan than that. Establishing an identity allows you to differentiate in an industry that craves something different and unique. Your brand needs to resonate with people both inside and outside your company.

The second foundational challenge is building your brand from the inside

out. Many businesses start and end with a focus on their external brand only, which often comes across as inauthentic, disingenuous, and hollow. Much like a personal identity, your brand must start on the inside. An identity must resonate soundly internally before you can successfully focus on the external. Without an internal focus, your external brand will crumble as soon as it is put to the test by any relationships you try to create.

With all that being said, let’s examine three cornerstones of any ordinary business plan:

» Your vision (why)

» Your audience (who)

» Your product/service (what)

BRANDING YOUR VISION (WHY)

Your internal vision is your culture. We all understand the importance of a strong company culture grounded in a strong internal vision: It will manifest itself externally to your clients. One of the most important characteristics of a strong internal brand is a culture of competition. When you have a team of winning-hungry employees with positive and competitive mindsets striving for excellence, the inevitable adversity that attempts to disrupt your

success won’t be enough to overcome the resilience of a competitive spirit.

Once your internal brand is properly established and everyone on the team is going after the same goal, it is simple to sell that to your clients externally. Your external brand simply “sells” to the client the why your company is living and breathing every day. Additionally, create important x-factors that align your internal culture and your external purpose. One example of that is emphasizing broker advocacy in your brand. Brokers play a crucial intermediary role that accelerates your brand growth.

Think about your external vision for your company. Is that your focus internally as well? For example, if you want your clients to be smart investors, are you creating a company dynamic that focuses on the success of your employees to be smart investors as well? Is there a culture of competition that drives everyone to the same unifying goal? If you have brokers that work with you, do you view and treat them as if they are your employees and include them in your company culture?

BRANDING YOUR AUDIENCE (WHO)

Once your “why” is established, look at your target audience. Developing it also starts internally.

Most businesses focus on the external client first, and all their metrics and measurements focus on the happiness and satisfaction of the client. They forget about their most important client: their employees. Your internal target audience is your employees.

A strong internal brand will lead to higher employee morale, an impenetrable culture, and a perfect balance between sales and customer service. If you want motivated employees who care about the metrics

as much as the managers do, then create a competitive and comprehensive pay structure in which employees determine their paycheck (as much as your bottom line can allow). This puts control in their hands. They have full ownership and accountability of their success.

Your external target audience is your clients. Once you prioritize your employees, their exuberance and motivation will extend to your clients. Measurements like customer satisfaction surveys, Net Promoter Scores (NPS), and market share will improve. Your market share will increase because of the focus on your competitive advantages, all while pushing your overall vision further along.

Focus on finding employees and clients who want to be in it for the long haul rather than those who just want to win today. Keep your employees happy, and your employees will keep your clients happy.

Ask yourself: Do you have key performance indicators set up internally? Make it easy for the clients to give you money by executing an excellent experience. A client will forgive a lot, except for being ignored. Do you have an NPS score that you are tracking externally?

BRANDING YOUR PRODUCT/SERVICE (WHAT)

Let’s talk about the product itself and how to market it alongside your brand.

Your attention must start with internal brand building because it creates free and passive leads for your product— the best lead flow possible!

When your employees do such a great job that your clients pay you back with referrals and word-of-mouth, that is more precious than the most expensive marketing money

can buy. This has been referred to as the “golden ratio” in business: If you get more free clients than the number of clients you lose, your business always has a growth ratio and will always scale on its own. Client retention keeps the ratio working in your favor because it keeps your clientele in-house. After that, any external marketing expenditure just supplements your growth rather than being the main driver.

Going back to our original point: As private money lenders, we can’t just sell money on its own. It needs to be marketed around our brand to be effective. Is your brand offering clients the cheapest money, the fastest money, or the best money?

The brand is the differentiator. This means you are marketing to your niches, or specialties. There are riches in niches. When you hyperfixate your marketing on a niche product and a niche audience, you will produce leads that are much more likely to convert to deal flow. As a result, you will also largely mitigate the disasters of opportunity cost. Opportunity cost occurs when resources are lost because of an uneven distribution of resources toward prospects or leads that didn’t convert into a deal. Focusing on your core strengths while minimizing opportunity cost is a formula for long-term growth and success.

Would your employees buy your product? Would they promote your product outside of work? Most important, is your employee a good representation of your product? Positive answers to these questions put your company in a position where a brand is selling itself through free and passive marketing. This will also ensure your company is always scaling no matter what uncontrollable variables may hit the market.

THE INFALLIBLE BUSINESS PLAN

A brand is your blueprint. It is your identity. Most important, the internal must dictate the external. Keep in mind:

» Focus on your internal culture to drive and promote your external mission statement.

» Measure your employee’s happiness—they will impact your clients’ happiness.

» A focus on internal culture and employee happiness will create additional lead flow and deal flow, which becomes a strong supplement to traditional, external marketing.

Master all these nuances when building out a bulletproof business plan, and you’ve got yourself a winning brand!

ARTHUR BUDIMIR

Arthur Budimir is director of business development with Constructive Capital. He has held several titles in the industry since January 2020, all revolving around the advancement of broker advocacy.

Budimir serves on the AAPL Education Committee and is passionate about mentoring and educating private money brokers across the country. Leveraging his more than 10 years of experience in sales and management before entering real estate, he is now solely dedicated to forging and sustaining new relationships with like-minded lenders and brokers to accelerate the continual growth and expansion of Constructive Capital as an industry leader.

10 “S’s” for Vetting Vendor Partners

Here’s what your vendors must stay on top of— so you can stay focused on your business.

JORDAN WILDE, JW PARTNER SOLUTIONS

Lenders and vendors face greater accountability at all levels yet find themselves relying on antiquated tools and “last year’s” technology resources. At the same time, a complete paradigm shift has occurred, allowing those who embrace advances in technology, artificial intelligence, and blockchain to gain a competitive edge, if they are applied in a strategic and synergetic manner.

Technology that delivers an AI overlay and datacentric approach will help lenders and investors better aggregate data, analyze markets and value, increase quality, reduce errors and turn times, and bring context and clarity to private lending. The industry is ripe and ready for a well-considered reassessment of how technology provided by the right vendor partners can better serve us.

The following top 10 checklist of S’s establishes a bar for choosing the right vendor partners. If your service providers don’t fall in line with this checklist, then maybe it’s time to reevaluate.

1. STANDARDS

Does the provider’s tech stack meet the wide array of compliance and regulatory standards to mitigate fraud and any form of data breach? Does it ensure adherence to policies, rules, and regulations?

We must have confidence that our data is protected. A high-value techstack integrates robust validation of regulations, client-specific rules, and data standards. It incorporates these needs into the system design, eliminating time-consuming and error-prone backand-forth between lender and provider. What’s more, technology should be able to flex as organizations pivot, adapt, and update processes and procedures to meet requirements and growth aspirations— without unnecessary added costs.

2. SOLUTIONS

Does your provider have to use multiple software platforms to offer their services? The needs of the private lending industry have surpassed simple form-filling portals. Modern lending products call for modern solutions.

Does your vendor partner offer a transparent client portal to manage service coordination, order management, client relations, and user management? Or is there a bevy of unrelated software to manage? A complete suite of flexible solutions can improve overall quality and efficiency and reduce the time, costs, and frustration of integration pains.

3. SERVICE

Your vendor partner’s services and technology should integrate client relations with top-notch customer service tools. From online customer access and order transparency to constant communication and follow-through, your provider should constantly keep your team members informed and make them a priority throughout the process. To offer the best customer experience, look for solutions that provide order visibility, customizable notifications, integrated communication tools, full order histories, and clear resolution paths.

4. SPECIALIZATION

Are you a lender, originator, investor, buyer, or seller? Whether your vendor partner offers title, valuation, insurance, inspections, draw management, servicing, LOS, legal docs, fulfillment services, or other offerings, your provider needs the experience and capability to meet your specific needs. Engaging the right provider with the right technology is critical to a successful and long-lasting partnership. Many technological solutions were designed and developed by those outside the private lending industry. The right vendor partner understands your business and develops products, services, and solutions that directly address the challenges inherent in the private lending industry.

5. SUPPORT

You might run a small lending shop with limited resources or be a large organization that must stay on top of the demands that come with heavy volume. Depending on your business and the roles of your staff, you’ll need access to responsive technical support and training.

Look for providers that offer a variety of support and training to fit your needs.

6. SECURITY

You work with personal information and sensitive data. Make sure your provider’s technology has policies, processes, and auditing methodologies that keep data secure.

Conduct thorough background checks and verify a potential vendor partner’s compliance with industry standards such as ISO 27001 or SOC 2. Additionally, assess the security posture of any third-party software you use within your mortgage systems. This includes conducting regular audits to identify any vulnerabilities that could be exploited by hackers. Data encryption, fault-tolerant backup systems, security policies, and disaster recovery procedures are imperative for reliable systems, regardless of where your technology lives. Don’t be afraid to ask your provider about their security protocols and processes that should already be in place.

7. SATISFACTION

Does your provider’s platform adapt to changes in your business? Technology should not dictate how you do business. Rather, it should adapt to meet your needs.

Current technology can meet these challenges without the weeks or months of delay we experience with old-school systems, even for a simple form update. Providing new products and customizable workflows should be a simple process that can be implemented within a short period for a provider who prioritizes being able to develop solutions quickly. Technology that can respond to industry changes overnight sounds like a dream, but it is tangible and real.

8. SAVINGS

Managing multiple software programs, manually shepherding orders, and coordinating vendors creates unnecessary overhead. Automation is not a luxury in technology; it’s the norm and should streamline the relationship with your vendor partners and customers. Auto-placement of orders, automatic data validation, customizable product configuration, and notifications are part of any truly automated solution. Having the right vendor partner can alleviate the need for additional staff and allow you to allocate employees to focus on their areas of expertise.

9. SUSTAINABILITY

If your provider’s technology is 2 years old or more, it’s out of date and can jeopardize the quality and accuracy of your business. Technology moves fast, and so do changes in regulations, rules, and customer requirements. Technology should be able to adapt to changes in the industry and business needs. Ask your provider how their solutions manage change in all these areas. They need to be agile, adapt to constant innovation, and develop systems that improve processes.

10. STRATEGIC

Does your solution offer the tools and resources to expand your business? Your provider should be a strategic partner who understands your vision and can implement configurable processes, custom offerings, automated functionality, and integration services that react to your business processes as you grow. Look for providers who offer a multitude of products and solutions as well as a variety of report and data delivery options.

As we become aware of innovations in technology and what is truly possible, we can and should expect our technology to address the pain points that are specific to our industry and we encounter in our day-to-day operations. As technology consumers, it’s time to demand that our tech catch up with changes in our industry, new challenges, and the everincreasing pressure we face to provide clean, quality, and accurate loan profiles for borrowers —and with fewer manual interventions to help mitigate fraud.

If your provider isn’t focused on nextgen technology that evolves with the industry and improves on current processes, it’s time to seek out one that does. Keep the “Top 10 Ss” in mind as you vet the many vendor partners that support the private lending industry. Remember: If technology doesn’t solve a problem, it’s not a solution.

offers a dynamic approach to lenders, investors, and service providers by leveraging his 24 years of experience in real estate, lending, financial services, servicing, default, and capital markets. Providing contract business development and marketing solutions, JWPS excels in connecting providers with ideal clients to develop long-lasting relationships, collaborate with like-minded partners, and capitalize on revenue opportunities while delivering best-in-class solutions.

JORDAN WILDE

Jordan Wilde, founder and CEO of JW Partner Solutions,

Circuit Court Vacates SEC’s New Rules for Private Funds

In a significant legal turnaround, the U.S. 5th Circuit Court of Appeals has nullified SEC regulations intended for private funds, marking a pivotal moment for private lenders and fund managers.

JACK O’FLAHERTY, HIGH DIVIDE MANAGEMENT

During the past year, you may have heard about the Securities and Exchange Commission (SEC) adopting a sweeping new set of rules and regulations to be applied to private funds. It was reported in Private Lender (https://aaplonline.com/articles/ compliance/understanding-the-newsec-private-fund-rules) and through numerous other sources. If you have been

eagerly waiting to hear more about the ruling’s applicability to debt funds or were already sifting through the cumbersome 600-plus-page ruling to determine what the changes meant for your fund, you can breathe a sigh of relief (at least for now).

On June 5, 2024, the U.S. 5th Circuit Court of Appeals vacated the Private Funds Advisers Rules recently enacted by the SEC, effectively striking down the ruling.

Although the SEC does have options for the next steps (it can either petition the Supreme Court in hopes of having the case heard or pursue its objectives through investigations or enforcement actions), the ruling is a large blow to the SEC and puts the new rules and sweeping changes on the sidelines for now.

According to the SEC, the Private Funds Advisers Rules were “designed to protect investors who directly or indirectly invest

in private funds by increasing visibility into certain practices involving compensation schemes, sales practices, and conflicts of interest.” Fund managers and many industry groups, however, viewed the rules as overly burdensome and an overreach of the SEC’s authority. Several of these industry groups filed a lawsuit against the SEC, which ultimately resulted in the 5th Circuit Court of Appeals June ruling.

IMPLICATIONS OF THE COURT’S RULING

The 5th Circuit specifically emphasized the nuance of the original intent of the cited legislation, Section 211(h), and the SEC’s use of that legislation, which they believed to be at odds. The 5th Circuit believed Congress, which enacted the legislation in the wake of the 2008 financial crisis, intended for reference to “investors” to mean retail investors, not private fund investors. They went further to say

Congress intentionally did not impose the same rules on private funds as they did on registered investment companies. The 5th Circuit clearly did not agree with the SEC’s point of view that they had the authority to protect private fund investors with their sweeping new set of rules.

As noted in the earlier AAPL article, the original SEC ruling contained a variety of new rules that were applicable to various private funds and registered investment advisors, with varying timelines and degrees of effort required. Those rules are no longer relevant or applicable.

FUTURE OF FUND REGULATION

If you are a debt fund manager, at a minimum, the 5th Circuit’s ruling buys you more time. That being said, you should continue to monitor petitions, investigation announcements, or enforcement efforts to

stay abreast of any shifts that could impact your fund strategy going forward.

Jack O’Flaherty, CPA, is a founding partner and managing member at High Divide Management (HDM), a fund administrator that specializes in providing outsourced financial reporting, investor reporting, and CFO consulting to real estate lending funds. Before HDM, O’Flaherty managed the financial reporting for Columbia Pacific Advisors’ bridge lending funds. He also was an auditor in the alternative investment practice at PwC.

JACK O’FLAHERTY

It’s Not Security Theater: Background Check Essentials

If background verification is just another checkbox in your due diligence process, you’re likely exposing your fund to unnecessary risk.

NICHOLE MOORE, GERACI LLP

Transparency and accountability are more than just industry buzzwords—they’re essential for protecting both funds and investors. As such, thorough background checks and due diligence reviews aren’t merely best practices; they’re nonnegotiable.

These processes act as a safeguard against fraud, conflicts of interest, and manager risks that could compromise the integrity of a fund. For fund managers, implementing a comprehensive risk management strategy tailored to the specifics of each investment and investor is crucial.

Background checks are a critical component of any risk management process, helping fund managers avoid reputational damage, regulatory penalties, and financial losses. By revealing key information about individuals or entities—from criminal records to financial stability—these checks provide a clear picture of who you’re dealing with and the potential risks involved.

The depth of these checks should be proportionate to the size of the fund, the nature of the investment, and the nationality of the investors involved.

IDENTITY VERIFICATION: THE FOUNDATION OF DUE DILIGENCE

Verifying the identity of parties involved in a transaction is fundamental. This process typically involves confirming governmentissued identification, cross-checking information against databases, and using biometric verification when applicable.

For entities, thorough reviews should be conducted to ensure proper signing authority and resolve any issues before funds are accepted or disbursed. Proper identity verification not only prevents fraud but also ensures compliance with Know Your Customer (KYC) regulations. Failing to verify identities correctly can lead to unenforceable contracts and a lack of security for disbursed funds.

CRIMINAL RECORDS AND REGULATORY COMPLIANCE CHECKS

Criminal records and regulatory compliance checks are vital to identifying potential red flags that could endanger the fund. Fund managers should conduct these checks on local, national, and international levels, particularly for individuals who have operated in multiple jurisdictions. Any involvement in financial crimes, fraud, or corruption is a significant risk factor.

Regulatory compliance checks are equally important. These involve reviewing databases maintained by financial regulatory bodies, such as the U.S. Securities and Exchange Commission (SEC) or the Financial Conduct Authority (FCA) in the UK, as well as checking sanctions lists. Ensuring that individuals or entities have a clean regulatory history helps maintain the fund’s compliance standing and avoids potential penalties.

FINANCIAL AND LITIGATION HISTORY CHECKS

Assessing the financial stability and history of individuals or entities is another key component of due diligence. This includes reviewing credit histories, financial statements, and tax records. Understanding the financial health of the parties involved ensures they can meet their commitments and do not pose a credit risk to the fund. Litigation history checks provide further insight into potential risks. By searching civil and criminal court records, fund managers can identify any past or ongoing legal disputes that could impact the fund. Frequent involvement in litigation, especially in financial disputes, may indicate a higher risk of future legal issues.

PROFESSIONAL AND EDUCATIONAL BACKGROUND CHECKS

The success of a fund often hinges on the expertise of its managers. Professional and educational background checks verify that individuals have the necessary qualifications and experience to manage the fund effectively. This includes confirming degrees, certifications, and professional licenses. These checks ensure those at the helm are equipped with the right knowledge and skills.

TAILORING BACKGROUND CHECKS TO THE INVESTMENT

The size and nature of the capital involved also dictate the level of scrutiny required. Large, complex, high-risk investments— such as those in emerging markets or volatile sectors—warrant more comprehensive checks. This could involve forensic financial analysis and deep-dive investigations into past business dealings. For smaller investments, a standard background check covering identity, criminal records, and regulatory compliance may suffice.

The role and influence of individuals within the fund should also guide the extent of background checks. Key decision-makers, especially those with significant authority, should undergo the most extensive checks, including personal financial reviews and detailed litigation histories. Although still important, background checks for support staff can be less rigorous, focusing primarily on identity verification and criminal records.

ADAPTING DUE DILIGENCE TO INVESTOR NATIONALITY

Investor nationality can significantly impact the due diligence process due to varying regulatory environments, political risks, and cultural factors. Fund managers must tailor

their background checks and due diligence efforts to account for these differences.

For domestic investors, particularly those from the U.S. and Western Europe, the regulatory landscape is typically wellunderstood, and information is readily accessible. Due diligence in these cases should thoroughly cover all key areas, with a strong emphasis on compliance and financial background checks. Checking financial regulatory bodies’ databases, such as the SEC or FCA, is essential to ensure that individuals or entities haven’t been penalized for regulatory breaches.

Foreign investors, especially those from emerging or high-risk markets, present unique challenges. In these cases, fund managers must conduct exhaustive due diligence to ensure compliance with both local and international regulations and to protect the fund from reputational and financial damage. Investors from developed markets generally operate within strict regulatory frameworks, simplifying the due diligence process. However, they still require thorough checks to meet stringent transparency and compliance expectations. Investors from emerging markets, on the other hand, often operate in less transparent regulatory environments with higher political risks. This necessitates more detailed checks, including scrutiny of political exposure and anti-money laundering (AML) compliance. High-risk jurisdictions may involve even greater challenges, such as potential involvement in illegal activities or exposure to international sanctions. In these cases, fund managers need to focus on regulatory compliance, financial stability, criminal background, and professional verification to align their due diligence with both local and international standards.

“Securities laws are intricate and evolving, and missteps lead to severe penalties.”

THE ESSENTIAL ROLE OF COMPREHENSIVE BACKGROUND CHECKS AND DUE DILIGENCE

In the global landscape of fund management, where the smallest oversight can have significant repercussions, meticulous attention to background checks and due diligence are not just advisable—they’re essential. The type and depth of these checks should be tailored to the specifics of the investment, the amount of capital involved, and the influence of the individuals in question. Additionally, due diligence practices must be adapted based on the nationality of investors to account for different regulatory environments and cultural norms. By adopting a comprehensive and nuanced approach to background checks and due diligence, fund managers can better protect their investments, ensure compliance, and maintain the trust of their clients and investors.

Securities laws are intricate and constantly evolving, and missteps can lead to severe penalties, reputational damage, and financial losses. Fund managers must seek experienced securities counsel to navigate the complex regulatory landscape of the financial industry. Experienced counsel provides guidance on compliance, risk mitigation associated with fundraising and investment activities and managing disclosures, and interactions with regulatory bodies. By partnering with knowledgeable

counsel, fund managers can confidently manage their operations while safeguarding the interests of their investors and maintaining the integrity of their fund.

Nichole Moore is an attorney with the Banking and Finance department at Geraci with broad real estate and finance experience. She was an assistant general counsel for a government agency, representing it in all phases of real estate development and advising various business units, government officials, and stakeholders.

Her experience also includes foreclosure and bankruptcy litigation, negotiations, contract review and legislative drafting. She has served on the D.C. Housing and Preservation Strikeforce, was a board member to the District of Columbia’s Board of Condemnation of Insanitary Buildings, and served as a Hearing Officer with the D.C. Mayor’s Office of Legal Counsel. She also served as a Hearing Officer for the Prince George’s County, Maryland, Department of Housing and Community Development.

NICHOLE MOORE

Tension, Conflict Are Keys to a Successful Fund

Foster healthy friction between your team for the benefit of investors and long-term fund stability.

ROMNEY NAVARRO AND CHRIS RAGLAND

You’ve spent years immersed in the private lending industry.

Perhaps your journey began with syndicating loans. Or, you may have started as a broker, aligning with several of the prominent programs across the country. Regardless of the path you took, one thing is clear—you have steadily positioned yourself to generate profits for others.

Take a moment to reflect on that last statement.

There comes a time when most private lenders realize the only obstacle standing between them and their ambitions is access to a reliable source of capital fully in their control. Relying on external sources of funding, whether from individual investors or institutions, often means working within someone else’s constraints. Many private lenders begin to explore options for creating their own efficient vehicle for managing capital. This almost inevitably gives rise to the concept of a fund.

NAVIGATING THE WATERS OF FUND CREATION

Establishing a private fund offers several significant benefits to private lenders.

First, it provides a flexible pool of capital that is under the lender’s direct management, allowing them to act fast in a competitive market and take advantage of opportunities that might otherwise be lost due to delays in securing financing. Moreover, a private fund enhances efficiency. A fund typically operates under a clear investment thesis or set of guidelines that aligns with the lender’s strategy, reducing the time spent deliberating over each investment.

Lenders also benefit from increased control. With external investors, private lenders often find themselves negotiating terms on a deal-by-deal basis, balancing the desires of different stakeholders and facing restrictions on how they can deploy capital.

Another key benefit of operating a private fund is the potential for larger margins. Managing a single pool of capital allows for economies of scale that are difficult to achieve when working with multiple smaller sources of funding.

Still, it’s important to recognize that creating and managing a fund comes with added

responsibility and complexity. Lenders must ensure they comply with regulatory requirements, particularly regarding securities laws and investor protections, as well as maintain the trust and confidence of the fund’s investors. Poor fund performance or mismanagement can have serious consequences for the lender’s business and their reputation in the industry.

CHALLENGES AND RISKS

The devil, as they say, is in the details. Nowhere is this truer than in the realm of fund management, where the pitfalls are far more numerous and insidious than they first appear. Managing a fund is a more complex undertaking than most anticipate, and the real question quickly emerges: Does the private lender truly have what it takes to operate a fund effectively?

The ability to originate loans does not automatically translate into the skill set required to successfully manage a fund.

Fund management demands a deeper understanding of financial strategy, investor relations, regulatory compliance, and risk mitigation. Without mastering these elements, even experienced lenders can become overwhelmed, or worse, put their reputation and capital at serious risk.

Funds, by their very nature, require a delicate balance to function properly. The most successful funds are typically managed by teams composed of individuals with competing, sometimes conflicting, interests. This may seem counterintuitive, yet in a well-run fund, these differing perspectives are not just inevitable, they’re actively encouraged. A healthy level of internal competition, where originators and underwriters frequently find themselves at odds, is a sign of a fund operating as it should. Their divergence of opinion can serve as a safeguard, preventing hasty decisions and ensuring that every investment is scrutinized from multiple angles.

However, this is where the skepticism lies. Does the typical private lender, accustomed to unilateral decision-making, truly understand how to foster and manage these competing viewpoints?

A successful fund manager must not only tolerate but actively embrace the friction that arises between these roles. It requires a rare skill: the ability to listen and give equal weight to both sides without being swayed too quickly by one over the other. Too often, we see funds run by individuals who, rather than appreciate the value of internal tension, prefer an environment of unchecked agreement, which can lead to disastrous oversights.

WHAT QUALITIES SHOULD A FUND MANAGER POSSESS?

Without a doubt, a keen eye for regulatory and compliance is critical. If the fund is not set up properly or doesn’t conform to

legal requirements, it won’t be long before a regulatory body will come knocking.

Second, a fund manager needs to understand processes and procedures. No, you can’t just override everyone and make a single-handed decision. The policies are in place and your investors make informed decisions based on your policies. To throw them to the wayside is to invite harsh criticism from your investor pool, regardless of the fine print or the power you may hold.

Finally, a fund manager should possess soft skills that we all hope and wish for in a partner: honesty, accountability, transparency, and access.

Although you may hold the title of fund manager, you will inevitably need to engage a range of specialized professionals to support the fund’s operations. This includes fund administrators, auditors, asset managers, underwriters, legal counsel, and a variety of software providers, all

“ The ability to originate loans, although valuable, does not automatically translate into the skill set required to successfully manage a fund.”

of whom must not only understand the intricacies of the fund but also elevate your reporting and compliance processes to a highly professional standard. The complexity of these collaborations underscores the importance of a cohesive and well-coordinated team.

So, where do things often unravel?

For many private lenders, the unspoken challenge—the proverbial elephant in the room—is the constant pressure to generate fees. This industry is characterized by an insatiable demand for fees, which are essential not only for covering payroll but also for bolstering other aspects of the business or, in some cases, for simply sustaining the viability of the overall business model. Ironically, the greatest risk to a fund frequently comes from the fund managers themselves, as the drive to generate these fees can sometimes lead to decisions that compromise the longterm health and stability of the fund.

Ultimately, managing a fund is not suited for everyone. Exceptional fund managers must possess not only patience but also the unwavering discipline to reject unnecessary risks, combined with a

fiduciary responsibility so deeply ingrained that it verges on obsession. The ability to consistently prioritize the interests of investors, even in challenging or turbulent times, is paramount. This requires a steadfast commitment to upholding the highest standards of stewardship, often in the face of immense pressure, making the role both demanding and highly exacting.

You may believe you’re ready to step into the role of a fund manager. And perhaps you are. But it’s imperative to arm yourself with the wisdom of those who have walked this path before you. Read as many cautionary tales as you can find. Study the missteps, the overlooked details, and the hard-earned lessons of others.

The world of fund management is littered with the remnants of promising ventures that faltered under the weight of unforeseen complexities and misjudgments. The road ahead is littered with risk, but also graced with opportunity. Only those who are fully prepared—both mentally and strategically—can hope to navigate it successfully. Proceed with caution, for this is not a decision to be taken lightly, and the consequences of overconfidence can be as swift as they are unforgiving.

ROMNEY NAVARRO

Romney Navarro specializes in helping private lenders optimize their debt and equity structures and supporting real estate developers with their capital needs. During his 20-year career, Navarro has participated in the origination of more than $1 billion in nonconsumer investment loans. Navarro is a former CEO of one of Texas’ premier private lending firms, a former podcast host, and the founder and host of multiple successful investment groups across the country. He is a proud member of the American Association of Private Lenders and continually pushes for excellence in all aspects of his work.

CHRIS RAGLAND

Chris Ragland has managed realestate-related businesses for the past 20 years, including brokerage, disposition, insurance, management, finance, and development. An active investor and principal in several real-estate-related ventures, Ragland continues to grow his portfolio of properties while he builds up those around him. Ragland serves on several boards for nonprofits and is also active in the start-up community in Austin, Texas.

The Power of Three

Is Constructive Capital’s new vice-presidential trio the secret sauce to record-breaking growth?

If you like games, rock, paper, scissors may top your list. For animated 90’s TV shows featuring three titular characters, there’s probably 10 you could pick from. Motown girl group? It’s got to be the Supremes.

Many of our favorite things seem to come in threes. So when it was time to promote from within, Constructive Capital leadership couldn’t choose just one. Instead, they flipped the board with a new executive model: three top producers with the same core competencies, but individually exemplifying nuanced talents and abilities.

The three VPs would work closely together, reinforcing each other’s strengths. They would build their individual teams— often in friendly competition with each other— but all striving toward the same goal of record-breaking origination for a company with sky-high goals and something of a unique business model in the industry.

Of course, this bright new plan was still at the drawing board. In practice, wouldn’t a three-pronged vice-presidential unit have just as much chance for infighting, power games, and turf-hoarding as they would becoming the singular example of teamwork and positive company culture?

Fortunately, no chance at all when you consider the trio Ben Fertig, Constructive Capital’s president, had in mind.

He promoted Kyle Concannon, Michael Fuller, and Benn Jackson to vice president

Mad libs: Meeting Edition

Jackson: “Well, it’s like this, Amanda: .”

Concannon: “You’ve got to see this video! It’s the cutest little .”

roles in April of this year. Together they bring more than three decades of real estate and lending experience alongside an uncommon blend of competitive collaboration and complementary leadership styles.

Streamlining Broker Success

Constructive Capital is a national wholesale capital provider for small- to midsize mortgage brokers and private lenders in the business-purpose loan market, specifically 1-4 unit DSCR loans. The company’s strategy is designed to simplify lending, reduce overhead, and mitigate risk for their clients, who they believe are the backbone of the private lending industry. Unlike borrower-direct lenders, the company operates discreetly in the background, empowering brokers to grow their businesses independently.

“Why do our meetings always end with

about .”

“We’re like a trusted consultant,” said Jackson, who is vice president of wholesale lending.

“Once someone signs up with

Constructive Capital, they learn the guidelines, they learn how to price a loan, so they can run with it independently, but with our advisement along the way.”

This focus on broker-centric support is a pillar of Constructive Capital’s success, but it’s the team behind the curtain that truly makes the magic happen.

Concannon, Fuller, and Jackson each live by a motto that drives their efforts.

“Ikigai— Find Your Purpose”

Concannon holds a degree in building construction management from Purdue University. Like Jackson, he serves as a vice president of wholesale lending, a role focused on managing client relationships. He embodies the Japanese philosophy of ikigai, which translates to “finding your purpose.” This philosophy guides his approach to work and leadership, combining passion and precision.

“Ikigai means what you’re good at, what you love, what the world needs, and what you can get paid for,” Concannon said, explaining the concept he learned about during Six Sigma training. “If you find your ikigai, you’re in the sweet spot, and you should keep doing it. I think that’s where we are at Constructive. We’re all having fun, closing a bunch of loans, and growing the business.”

Fuller:

Kyle and Benn off talking

“ WE WERE THE BIGGEST PRODUCERS AT THE COMPANY, AND NOW WE CAN REALLY CRAFT HOW WE WANT THE PRODUCT TO BE AND HAVE EVEN MORE INPUT INTO HOW WE THINK THINGS SHOULD FLOW THROUGH THE SYSTEM.“

Concannon’s journey with Constructive Capital began at a time when the company had made a simple yet insightful observation: There was a significant gap in the market for small to mid-sized mortgage brokers. These brokers often struggled to find the right capital solutions, and the model Constructive Capital was formulating filled that sweet spot.

“We empower the brokers to run their businesses with us,” said Concannon. “We don’t want any credit. We just want them to do amazing work.”

for loans surged, and Constructive Capital was well-positioned to support brokers when other lenders faltered.

“COVID just really added a lot of energy to our production,” he recalls. “We were set up to help brokers grow, and we’ve just grown with them ever since.”

Concannon said Constructive Capital’s broker-centric model flourished, particularly during the COVID-19 pandemic. With interest rates dropping, the demand

“One

for All, and All for One”

Fuller’s approach to leadership is grounded in the belief that success is a collective effort: “One for all, and all for one.”

“The three of us got promoted together and we speak several times a week—if not all the time. We’re happy to jump in and help each other,” said Fuller, who focuses on product enhancement in his role as vice president of product-wholesale. “If someone has a better answer or an easier answer, a quicker answer, or is more in tune to assist in any way, we let that happen. There’s no territorialism here. We all really want to see everybody succeed—to the point where if we think someone would work better with one of the others, we’ll move them around.”

Fuller, who has a degree in economics from Binghampton University, touts a leadership style that emphasizes building relationships, both within the company and with clients.

“I visit many of my clients monthly,” he said. “Having that one-on-one time with them is really important. It helps build trust, and that’s what makes clients stick with us even when things go wrong.”

Like his colleagues, Fuller started at Constructive Capital as a loan officer, hustling to bring clients through the door. Over time, he and the others built their own brands within the company, earning a reputation for excellence.

“We all started as loan officers … building up our business and our expertise, building up our reputation within the company,” he recalls. “Because of our success in building our own individual brands, the company felt we were in a good position to … lead our own teams and that’s evolved to the point where we have even more responsibility.”

Their collaborative mentality has allowed Fuller, Concannon, and Jackson to foster a work environment where egos are checked at the door.

“None of us really have a huge ego,” said Concannon. “That helps contribute to a team atmosphere.”

“Success Isn’t Accidental”

Jackson, who has a degree in finance and investment management from the University of Illinois-Chicago, believes success is never accidental, so you must craft opportunities. As the last of the trio to join the company, Jackson quickly rose through the ranks, making

a name for himself by building strong relationships with clients and leveraging those connections to drive success.

“Each of us runs our own respective teams, and we all contribute individually,” Jackson explained. “We want everyone to be successful, and coaching is a big part of that. We’re the happiest three people when everyone in the company is hitting their goals, like in July when we posted our record revenue month.”

Jackson’s emphasis on teamwork is evident in the way the three operate. Although each vice president leads their own team of loan officers, they frequently rely on one another for support.

“We can all depend on each other,” Jackson said. “We’ve had to many times. I’ve had to go to Michael and Kyle, or Kyle’s come

Favorites

Movie/TV show?

Concannon: Seinfeld

Fuller: Blazing Saddles

Jackson: Caddyshack

Place to travel?

Concannon: The Caribbean

Fuller: Anywhere

Jackson: South America

Season?

Concannon: Fall

Fuller: Spring

Jackson: Summer

Holiday movie?

Concannon: Elf

Fuller: None

Jackson: Die Hard

Weekend activity?

Concannon: Hiking

Fuller: Time with family

Jackson: Hiking, biking, renovating houses

Guilty pleasure?

Concannon: Million dollar

listing

Fuller: Afternoon naps

Jackson: Good cigar

to us for help. … We’re all pushing in the same direction, and being able to depend on each other is really important.”

This spirit of collaboration is one of the defining features of Constructive Capital’s leadership. Despite being top producers and internal competitors, the trio has managed to strike a balance between competition and cooperation.

“We all want to see each other do well,” said Jackson. “That’s what makes it work.”

Constructive Competition

As top producers, Concannon, Jackson, and Fuller are constantly pushing each other to excel. Yet, this competition is never destructive—instead, it’s a

driving force for innovation and growth. Their competition is constructive.

“We’re always helping each other out,” said Jackson. It’s about making the company better, not about outdoing each other.”

Concannon agrees, adding that each of their recent promotions to vice president has only strengthened their collaboration.

“We were the biggest producers at the company, and now we can really craft how we want the product to be and have even more input into how we think things flow through the system,” Concannon said.

Sometimes a plan plays out so well, you start wondering if it’s your new secret sauce to success. Just three months after giving the trio free reign, Constructive Capital posted its highest revenue month in history.

July marked more than $200 million in revenue, and they were on track to break their record again the following month.

“It’s super exciting to be at the forefront of this,” said Jackson. “

Shaping the Future Together

Looking ahead, the trio is confident Constructive Capital is poised for even greater success.

Concannon, Jackson, and Fuller see their roles as more than just leading teams—they are actively shaping the future of the company.

“We look at this company like it’s our own and how we think it can work,” said Concannon. “We can build it in our image,

and we’re invested for the long-term.”

As Constructive Capital continues to grow, Concannon, Fuller, and Jackson remain focused on serving the small to mid-sized brokers that have driven the company’s—and the industry’s—success.

“We’re focused on the client so they can grow their individual businesses and brands ... and can look great in front of their borrowers,” said Concannon. “That’s what it’s all about.”

In an industry where success often hinges on individual performance, Constructive Capital’s musketeer approach to leadership demonstrates that teamwork, trust, and a shared vision can be the ultimate competitive advantage. So our favorite “three” of the moment? C, F, J.

SERIES NOTE

This series examines due diligence factors in markets representative of their region:

1 Local factors are broad and evaluate the market’s type and size (i.e., primary, secondary, tertiary, rural, remote), economic drivers, size of the buyer pool, and typical buyer profiles.

2 Hyperlocal refers to a specific neighborhood, its submarket, investment dynamics, and other neighborhood-level intelligence.

3 Unique diligence factors are specifics to check to ensure the environmental health and safety of the property.

Hyperlocal Due Diligence: A Look at Tampa, FL

Detailed inspection of this MSA reveals early signs of trends not yet apparent at the macro level.

RODNEY MOLLEN, RICHERVALUES

Real estate investors are familiar with “Location, location, location.” That adage tells us more than we might think. It represents three due diligence factors critical to the success of any investor: local, hyperlocal, and unique diligence factors.

The second installment in the series focuses on Tampa, Florida, which continues to appeal to buyers across a broad spectrum.

LOCAL

Tampa is typically categorized as a primary or secondary market. It continues to attract a variety of buyers, including executive, luxury, and retirement, as well as workforce housing, urban, and suburban. Long-term rental is not as prevalent as it is in other markets, but short-term rentals can perform quite well. Various waterfront submarkets exist, with the level of waterway access generally having a material impact on price and demand.

Here are some important trends that we’re seeing, based on aggregated data from all properties analyzed (but not necessarily purchased) by lenders and investors on RicherValues, either by clients conducting their own analysis or by ordering our evaluation reports.

STEADY MARKET DEMAND. Although the market demand scores declined from January to September 2023, like most markets, the demand has held quite steady since then, through August 2024 (see Fig. 1). This is great, especially compared to most markets, which have seen notable declines during this period. Although inventory levels jumped to 2.9 months in September 2023 from the lows they had seen (0.9-2.1 months), they have moderated since then, mostly hovering from 2.8 to 3.8 months. Historically, many industry

“ The demand has held quite steady since [September 2023]. This is great, especially compared to most markets, which have seen notible declines during this period.”

professionals consider five to six months to be a healthy range, but it’s also the tipping point at which markets switch from sellers’ markets of low inventory to buyers’ markets of high inventory.

FINDING DEALS IN AREAS OF HIGHER PRICE VARIATION. As we saw in our first study of the Atlanta market, investor activity continues to move into areas of greater price variation. After enjoying

some local pockets of simpler deals (i.e., properties located in neighborhoods where home prices show less variation and are easier to evaluate) from January to September 2023, investors and lenders are moving back into areas that exhibit more price variation. The implication is that lender/investor deals being analyzed are beginning to require greater levels of diligence within the valuation world to ensure they accurately quantify the deal.

Figure 2 shows the FSD (forecast standard deviation) score from January 2023 to August 2024. You can think of the FSD score as a “reverse confidence score.” It measures the accuracy of analytical models that were used to determine a property’s value. A lower score means the model has more effectively identified sales price drivers, yielding greater confidence in the valuation. A higher score indicates an area has greater variation in sales prices and it was harder for the models to determine what specifically is driving price; therefore, a human touch is likely needed to sort through the details and ensure valuation conclusions are accurate.

A SHIFT AWAY FROM $250,000-$400,000 AFTER REPAIR VALUE (ARV). A quicker shift than we’re seeing in Atlanta, the percentage of deals analyzed by lenders and investors that fall within $250,000 to $400,000 based on ARV has dropped significantly in recent months, with deals from $450,000$750,000 as well as under $250,000 showing greater market share (see Fig. 3).

Although inflation may have pushed some properties into the higher value ranges, from growth in the under $250,000 range, we can infer that shifting appetites or perhaps shifting availability of deals are the primary drivers rather than inflationary issues.

By comparison, the buying power in Tampa is not as strong as a market like Atlanta, but it remains noticeably better than other Florida markets such as Miami. Figure 4 provides a look at the average home specs per value band in the three markets mentioned.

HEAVIER CONSTRUCTION. Similar to Atlanta, the Tampa market saw a huge surge of light rehab deals from May to November 2023 in properties in moderate/maintained [C4/C3.5] condition, with heavy and new construction dropping to near or below 20% of total deals evaluated (see Fig. 5).

FIGURE 4. MARKET COMPARISON SPECS: ATLANTA, TAMPA, MIAMI

On the other hand, throughout 2024, the percentage of deals in poor to very poor condition [C5/C5.5], generally noted as heavier construction deals, have increased to 40-50% of deals evaluated by lenders and investors. Part of this could be driven by the higher prevalence of weatherdamaged homes for flood, wind, roof, and other damage, specifically in this and other coastal markets; this is less common in other markets. This also indicates that overall investor confidence in the longerterm prospects of the market is strong.

GREATER INVESTMENT IN HIGHER DENSITY LOCATIONS. In most MSAs, there’s a constant fluctuation between deals in the inner core (urban/suburban) areas versus outer areas (lower density suburban and outlying). Tampa has shown some interesting patterns during the past 20 months: a general and sustained trend of evaluating deals in more urban, higherdensity locations and a decline in deals in standard, suburban areas (see Fig. 6).

This can be a common market response when inventory is low, although it could also be due to a greater ability to achieve a profitable increase in value for a given amount of renovation or construction. Often it can be harder to make the numbers work in suburban neighborhoods, which might have less downside price variation (i.e., fewer acquisition opportunities at low enough prices).

For additional color, Figure 7 shows some popular neighborhoods with greater investor activity within the top six ZIP codes, which include five urban and one suburban ZIP code as measured by population density.

HYPERLOCAL

As with any MSA, it’s important to understand a specific location by gathering neighborhood-level intelligence on the

FIGURE

immediate area, submarket, and investment dynamics. The metrics you search for should be measured to help quantify hyperlocal activity, supply/demand balances, investment activity, and other factors.

Here are common factors that can affect real estate and lending at the hyperlocal level:

MARKET DEMAND. These are important in basically every hyperlocal area in the country, and include inventory, renovation activity, and other factors.

VINTAGE. Considerations include age and historic or development districts—old does not mean historic!

NEIGHBORHOOD. Standard items in most markets include school districts, golf course/country clubs, etc. In Tampa, these could reflect community access to waterfront docks/harbor.

ASSET QUALITY. Various pockets of Tampa can have a wide variety of housing stock, so it’s important to do an apples-toapples comparison and not simply rely on geographical proximity. What is the subject property, and what is the makeup of its direct street/block? How does this compare to the surrounding blocks and where does it change? Pay attention to vintage, roof sizes, stories, lot size, and other factors.

CRIME STATISTICS. Local crime maps and other reports are a quantifiable way to evaluate hyperlocal areas, including Tampa.

UNIQUE DILIGENCE FACTORS

Tampa has experienced sustained infill redevelopment and renovation for more than 10 years, and the area has tended to be pretty “analysis friendly” (if that’s a term), meaning we haven’t found too many unique diligence pitfalls. Still, here are a few key items that are common for conducting diligence and valuation assessments in Tampa and the surrounding areas:

“Metrics should be measured to help quantify hyperlocal activity, supply/demand balances, and investment activity.”

WATERFRONT ACCESS. If you’re looking at property anywhere near the Bay, then waterfront access is often a major factor, and it’s not a binary yes/no question. First, does the subject have/not have waterfront access? If yes, does it offer direct “deepwater” access, or is it shallow water only? In addition, does a private boat dock exist, and what’s the potential to expand/build a larger one if desired? Additionally, how much direct waterfront frontage does the lot have? If the lot doesn’t have direct access, does it participate in a community dock or harbor; if so, how strong are the amenities, how far are they from the subject, and will this impact value positively or negatively?

BACKYARD AND LUXURY OPPORTUNITIES. In many markets of Tampa, houses are about selling the allure and lifestyle to buyers (e.g., luxury pools and outdoor living spaces). Some key questions include: Does or can the subject offer any backyard and outdoor living opportunities? If yes, will they be more generic in character or are there opportunities to provide unique allure, to attract buyers to the neighborhood at a premium?

HURRICANE PREPARATION. These data fields are generally not reported within MLS, except by reading listing comments, but the presence of recent renovations and preparations for hurricanes, such as shutters, roof, and other construction preparations can sometimes add key value, either in achieving a higher sales price, or in attracting buyers more quickly. Although it

can take more effort to quantify this item, it’s generally worth conducting the diligence.

This short look into a popular MSA provides an example not only for lenders active in Tampa but for all lenders. This market-based approach provides the opportunity to break down the thought process and see how local, hyperlocal, and unique diligence factors all play a role in making smart lending decisions, whether by offering more competitive terms in attractive, lower-risk areas or by passing on a deal altogether.

Rodney Mollen is the founder and CEO of RicherValues, a software and valuation services provider that delivers high-quality, comprehensive intelligence for lenders and investors on any residential asset nationwide. Mollen has more than 20 years of experience, including acquiring, managing, renovating, and selling over $1.2 billion in REO and NPLs nationwide from 2008 to 2013 as COO of an Arizona-based investment firm.

RODNEY MOLLEN

2200+

Attendees each year across SFR West and SFR Awards event programs.

12

The Blind Spot

Operational risk is a lesser-known counterpart to credit risk, but it poses as many potential pitfalls.

JOHN ADRACTAS, TRUSTPOINT.AI AND TOM HALLOCK, DLP CAPITAL

Construction or renovation lending is unique within the broader world of mortgage and asset-backed lending. Unlike financing a car or an existing home purchase, financing construction or renovation requires underwriting a borrower and an asset in the making. Construction and renovation involve countless moving parts and stakeholders and, accordingly, countless vectors for project failure.

As the adage goes, construction projects take twice the time and twice the budget expected. Operational risk management is about monitoring and adapting to protect the capital you have at risk.

This article focuses is on business-purpose loans (BPL) in construction lending for “resi-mercial” with its broader meaning of renovation through new construction of single-family or multifamily housing.

SERIES NOTE

OPERATIONAL RISK BASICS IN LENDING

When most lenders hear “risk” in the context of a loan, they immediately think about credit risk: the possibility of a financial loss to the lender if a borrower fails to repay or fulfill the contractual obligations of a loan. Yet credit risk is only part of the story. Its shadowy counterpart is operational risk, namely the possibility of financial loss or reputational damage due to internal processes, people, or systems that are inadequate, or from external events beyond the lender’s control.

Let’s look at a fun analogy that illustrates how and why operational risk matters in resi-mercial construction lending: the funding of a movie production. A movie production starts with an idea, and realtime adjustments (often many) are made along the way. It has a budget and timeline, though both are notoriously hard to

This is the first article in a series on operational risk in construction and renovation lending. The series, written from the perspective of a chief lending officer, will examine examples of operational risk, address common misperceptions, and propose emerging best practices and recommendations for lenders striving to scale their portfolios responsibly. Note the focus on operational risk (also called transaction risk), although there are nine formal risks as categorized by bank regulators.

forecast. The movie becomes “real” at some point, yet only the market will tell you if it’s successful. Further, the project involves a long list of credits with countless stakeholders, each playing a unique role. By definition, complexity is added with each layer, and operational risk increases as well. From writers to actors to directors and producers, every additional party in a movie introduces new dynamics that can either complicate the process or contribute to its success. Miscoordination and misalignment are common. Not all movies are completed. Despite best efforts, successfully completing the movie may still lead to financial failure. In short, a lot can go wrong.

Similarly, a resi-mercial construction project involves multiple layers and complexities, introducing the potential for significant operational risks. Projects often involve a loan buyer or warehouse lender, originating lender, owner-developer, general contractor, subcontractors, and suppliers, not to mention external parties such as code inspectors, progress inspectors, and even neighbors!

As with a movie, completing construction and selling or renting the newly finished asset does not guarantee success. To make matters worse, some parties may even have the right to file a lien against the property despite being indirectly related to the project and/or completely unknown to you as the lender—or even your borrower.

Remember, any party involved in the loan or its underlying project can introduce operational risk. This means operational risk is not limited to a lender’s processes, people, and systems. It can include any party involved in the project, from borrowers to contractors and beyond.

WHAT OPERATIONAL RISKS LOOK LIKE

Below are common operational risk factors seen in construction or renovation loans. Keep in mind these are far from comprehensive and intended to raise awareness through tangible examples based on real experiences.

REDUCTIONS

IN BORROWER CASH FLOW. Most suppliers and trades will require deposits to create an order or get a spot on the schedule. For example, many window manufacturers require a 50% deposit upfront and the remainder upon delivery. Beyond these initial deposits, you should also build in a buffer for unexpected changes in supply chain costs, as seen with COVID-era lumber costs or rebuilding after extreme weather.

Finally, changes on another construction project can impact shared stakeholders, leading to a contagion effect. Borrowers and contractors in financial distress may try to use unrelated funds, including taking cash from a healthy construction project in your loan to cover somewhere else.

INCREASES TO PROJECT BUDGETS OR TIMELINES. Beyond garden-variety scope creep, two of the most common culprits that increase time and cost are code inspections that create significant new work (such as installation of a retaining wall wall) and supply-chain delays, changes, or errors. Intermittent weather, such as cold periods preventing concrete cure,

can also cause short-term wait periods that cascade dependent projects.

Meanwhile, fire, theft, vandalism, and site damage from natural disasters are less common on a per-project basis but more likely at scale/across a portfolio.

Lenders should also be aware that their own processes can fumble the timeline, such as ordering a progress inspection outside of the regular scope intervals already planned.

Across all these possibilities, general contractors and other vendors may require regular overhead payments to retain services, regardless of the reason for delay.

LIENS. Mechanics liens are the bane of any project: not only may your borrower

have payment disputes with their general contractor, but that GC may have disputes with vendors, subcontractors, and even their subonctractor’s subcontractor. Parties neither you nor the borrower are aware of but who performed work or delivered supplies may have valid claims for payment.

WEAKNESSES IN FUND CONTROL

PROCESSES. Human error such as draw approvals or change order approvals may be misaligned with your fund control policies, including work in place and contingency releases. Your team may improperly fund the project by fat-thumbing manual entry, referencing disconnected systems, funding draws with the wrong bank account, or paying the GC’s account directly.

“ C redit risk is only part of the story. Its shadowy counterpart is operational risk.”

Beyond human error, inconsistent processes create room for discrepancies. For example, if the inspection order lacks scope-related context, you may then document an inaccurate view of completion. Further, missing or incomplete supporting documentation may violate fund control policy or capital provider reporting requirements, while funding draws without knowing the latest servicing status may

lead to sending additional funds after the borrower has requested early payoff.

FRAUD. Borrowers and/or related parties may seek to misrepresent or obvuscate a project in any number of ways, including misleading photos to prove completion status, falsifying lien waivers, misleading the inspector as to unit number or address, or even colluding directly with the inspector to falsify a completion report.

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LEGAL OR COMPLIANCE ISSUES. Challenges between lender and borrower include disputes over approved changes or draw amounts, especially if this reduces the draw or impacts their interest charges. Meanwhile, disagreements between the borrower and their contractors or suppliers may result in legal or code compliance complications.

CYBER THREATS. These threats often take the form of ransomware and other attacks.

NEW CONSTRUCTION VERSUS RENOVATIONS

Keep in mind that although construction and renovation share some operational risks, they have critical nuisances. For example, new construction, additions, or major renovations may involve required permits, plans, insurance coverages, and local government code inspections. In contrast, renovations generally involve going backward in terms of asset value before going forward (e.g., mid-rough phase project may be worth less than its starting point).

Although some operational risk factors will always be out of your control (by definition!), you can make informed and strategic choices about your mitigation plan. Talk openly with your team about which factors are relevant to your portfolio. Ask questions and explore any mitigations you believe are in place. Objectively assess your residual exposures by operational risk factor, ideally every quarter. Inherent in successful operational risk management are transparency, systematic oversight, and well-chosen technology and partners to help. Don’t avoid operational risks—they are real and can hurt you, your clients, and your investors.

As a construction or renovation lender, your ability to monitor and manage operational risks can significantly influence your portfolio performance, client experience, and ability to scale. Although thoughtful credit risk decisions set the stage for success, proactive operational risk management during the performance helps ensure success is realizable.

REFERENCES FOR FURTHER READING

Federal banking regulations for lending

“Categories of Risk” NR 96-2 (1996, US Office of the Comptroller of the Currency

“Operational Risk Management: An Evolving Discipline” (2006, US FDIC)

“Commercial Real Estate Lending” (2022, US Office of the Comptroller of the Currency)

Nonbank lending

“Popular Private Lending Content” (2024, Geraci Law Firm)

“Flipping Out: The Evolution of Residential Transition Loan Securitizations” (2023, Mayer Brown)

Other resources

“Characteristics of New Housing” (2024, US Census)

John Adractas is the CEO and co-founder of TrustPoint AI. A serial entrepreneur and founding product leader in vertical SaaS and enterprise analytics across five companies, he previously worked at Google and Simplee (now the healthcare division of NASDAQ: FLYW). Adractas earned an MBA from Harvard Business School and a bachelor’s degree in mathematics and philosophy from the University of Pennsylvania.

TOM HALLOCK

Tom Hallock is the head of originations at DLP Capital LLC. An expert in real estate and construction lending across bank, nonbank lending, and fintech spaces, Hallock initially worked at a community bank. He joined Countrywide Home Loans, hitting 5,000 loans within three years. Later he worked at American Homes 4 Rent managing acquisitions and foreclosure conversions. He also launched their NPL subsidiary, AMIP. In the private lending space, Hallock has worked at Genesis Capital and PeerStreet. He has an MBA from California Lutheran University and a bachelor’s degree in real estate from USC Marshall School of Business.

JOHN ADRACTAS

Are Receiverships a Strategic Tool or Overrated Trend?

For lenders unprepared or uninterested in managing distressed property, a receiver may be worth their weight in gold—or a massive headache.

GENE BUCCOLA, HIGH PLATEAU CAPITAL

Adeed in lieu might seem like the quickest path to repossess a real estate asset. The process offers a relatively swift way to reclaim property, immediately adding value (albeit in a non-liquid form) to your balance sheet. However, the allure of expediency often masks the underlying challenges. Properties acquired through deeds in lieu may not be fully leased, or they may require the builder to add finishing touches.

A more strategic approach might involve receivership. By appointing a receiver to manage the asset, owners can potentially maximize the asset’s value through operational improvements.

Although the financial performance may not match pre-distress projections, a functional, operating site is generally more attractive to buyers. The ultimate goal is to optimize the property, sell it, and recoup some of the initial investment.

Let’s consider a hypothetical case study involving a medium-sized multifamily apartment site. As the private lender, you have a good rapport with the owner, who is also the builder. The guy is doing his first development project, believes in its success, and lives on the property. A few units have yet to be polished and punch lists aren’t completed, but the building has its certificate of occupancy, and all other units are finished and slowly leasing up.

But now the contingency you planned for but hoped to avoid is a reality.

The broader market (specifically this local market) has shifted substantially, and the asset you’ve invested in has failed to live up to its estimates.

Originally this asset was to be a shining light in your portfolio: It hit the right market at the right time with the right rents for the targeted audience. Now, due to permit delays, labor and materials increases, and a job market that fell flat in the region, the property is falling grossly short of the pro forma upon which you based your investment decisions. You’ve nurtured the owner and the city, but it’s time to bring in some alternative options as no loan payments will be paid for the near future. What’s next?

RESEARCH YOUR OPTIONS

Having a conversation with a trusted broker may be a good discussion to start on the side. Doing so gives you a picture of the market outside this specific property and allows you to build a 5-year pro forma that would indicate what a hold could look like versus an optimized sale versus a deed in lieu. It is clear your borrower is paddling hard against the current, and you’re being pulled along for the ride. Ultimately, this means that in its existing form, the property will be unable to carry itself with the current rent roll. Lender distributions from operational funds are nonexistent. Armed with some information about your specific property as well as the marketplace, you call your legal counsel. It’s time to start a challenging process to recover your funds to the extent possible. As a savvy creditor rights advocate, your attorney has several possibilities for you that you’ve reviewed in theory. After your conversations, it’s clear that a receivership may be the best way forward in this situation.

A receivership is a tool that more and more states are encouraging, applying a legal principle that gives a property one final chance to revive and operate before a state of bankruptcy or foreclosure occurs. You’ve reviewed the pros and cons with your team considering the time, expense, and legal fees that would be required to execute. The difference in the sales price of the asset ultimately tips the scale in favor of the receivership. The increased price of a stabilized asset means that the time, expense, and legal efforts would be ultimately worth it.

A SOLUTION

Opting to proceed with receivership, your attorney begins drafting documents. As a private lender, you’ve had to deal with prickly debtors and delayed payments, but this is the first time you’ve entered a receivership. A call to a few trusted colleagues quickly shows that you are not alone in this; in fact, it’s becoming increasingly common. You get a few names of receivers that were liked, also some that were not. What qualities should you be looking for?

Your receiver should have extensive experience in the local market, a history in development or construction, and a deep knowledge of asset class stabilization and sales. The receivership team or individual will step in to relieve the debtor of operational responsibilities. Thus, the receiver will be required to step into construction completion, bring up rental comps for analysis, and optimize the units already leased. This all happens concurrently while operating on a shoestring budget. Your attorney advises that in the first month or two, you may be required to put in operating funds–this ensures that projects are completed and utilities, etc., are paid to continue the optimization of the asset.

What else? The attorney advises you that the receiver is to be independent of any of the parties associated with the asset. Although the receiver may take opinions or have discussions with the lender, lien claimants, the owner, or the lender’s counsel, the receiver will keep their own course based on their assessment of the property. They will be appointed by the court to preserve, protect, and stabilize to the highest point possible.

Releasing the reins is a bit daunting for your

lending team, but the knowledge that the receivership is in place for the best interest of the property is a comfort. Receivers don’t represent the debtor or the lender. They even retain their own legal counsel. This further protects their independence, without pressure from either side.

WHAT TO EXPECT

After the receiver is appointed, they will review the court order to identify any restrictions or special instructions. From there, the operational aspects will take over. Obtaining access to current bank accounts, setting up a separate trust account for operations (accessible only to the receiver), obtaining upfront operating funds if necessary, and, in certain cases, procuring a bond.

The receiver will have interviewed and chosen a property manager for this asset. That manager will be able to collect rents, change locks/keys, handle tenant communications, and document the current condition of the property. They will have access to all the utility accounts to ensure they are kept current—this includes water, sewer, gas, electric, etc.

On the construction side, the receiver will make note of any violations, permit status, and subcontractor mechanic liens. This will allow them to finish the work (whether with the current builder or another general contractor) to complete lease up as expeditiously as possible. Coordination with the property manager facilitates a timely marketing pitch so that the unit can be occupied as quickly as possible upon completion.

Your finance team will easily be able to track receiver actions on the property with the detailed reports that will be produced monthly. The receiver will have the ability to

act immediately upon appointment to take over any available funds, contracts between owner/vendor, and insurance policies. All accounting records will be placed with the receiver, who can set up a budget or forecast for the property, month by month. They’ll be providing regular financials to the court (i.e., P&L, balance sheet, rent rolls, and estimated disbursements).

Though they are consistently acting independently, you can be briefed on all of these items as long as it’s not deemed a conflict with the plans for the property. The situation will start to stabilize, and your contact with a trusted broker will become increasingly pertinent. Obtaining BPOs along the way will allow your projections to show a realistic sales price, rental pricing outlook, and NOI. You’re on your way.

Receivership is a tool, not a cure-all. You should analyze whether the potential benefits justify the time and expense. A courtappointed receiver can be a valuable asset, but it’s important to use them strategically.

GENE BUCCOLA

Gene Buccola has more than 10 years of special asset banking experience, honing his skills in managing bank-owned commercial real estate. His comprehensive approach includes evaluating asset value, implementing preservation measures, managing necessary evictions, and stabilizing properties for successful sales.

Your Best Defense Against Commercial Real Estate Fraud

Market pressures mean more fraudsters and more mistakes, but there are effective strategies to combat this growing trend.

MEGAN CASTLETON, ESSENCAP FUNDING

In the complex world of commercial real estate, the threat of fraud looms large, impacting stakeholders at every level— from investors and developers to lenders and attorneys. The scale of fraud in real estate transactions is both alarming and costly.

REAL ESTATE FRAUD: PART OF A BROADER TREND

According to the Federal Bureau of Investigation (FBI), in 2022 alone, real estate-related fraud, which appears to have peaked, led to losses of over $350 million, with wire fraud constituting a significant portion of these losses. In 2023, FBI Cybercrimes Report details real estate-related cyber-crime was down slightly, but it still accounted for approximately $145 million in losses.

This is part of a broader trend: The FBI’s Internet Crime Complaint Center (IC3), the FBI’s cybercrime reporting and investigative task force, has noted a steady increase in real estate fraud complaints during the past decade, emphasizing the critical need for robust preventative measures.

COMMON TYPES OF FRAUD

The perpetrators of these frauds are often sophisticated criminals who leverage advanced technology to exploit vulnerabilities within the real estate transaction process. Wire fraud, in particular, has seen a sharp rise, with cybercriminals intercepting and redirecting funds during the closing process through carefully orchestrated phishing attacks. The National Association of Realtors (NAR) reports that in 2021, nearly 13,638 people fell victim to wire fraud in real estate transactions, with losses exceeding $213 million.

Other common schemes include:

» Property-flipping schemes in which properties are bought and sold at inflated prices within a short period, often involving collusion between appraisers, mortgage brokers, and buyers.

» Entity document fraud, in which fake or altered documents are used to misrepresent the ownership or financial status of a property.

» Identity fraud, in which a perpetrator assumes another person’s identity to conduct transactions.

» Equity-stripping schemes, in which fraudsters gradually deplete the equity in a property, further complicating the landscape.

Additional types of fraud highlighted by the 2023 FBI Cybercrimes report details a real estate fraud scheme in Connecticut in March 2023 that IC3 received: “The individual was in the process of purchasing a home and received a spoofed email from their supposed attorney instructing them to wire $426,000 to a financial institution to finalize the closing. Two days after the wire was initiated, it was realized the instructions came from a spoofed email. Upon notification, the IC3 RAT immediately initiated the FFKC process to freeze the fraudulent recipient financial bank account. Collaboration with the domestic recipient financial institution and the local police department confirmed $425,000 was frozen and returned to the individual which enabled them to complete the real estate transaction.”

This type of fraud, classified as business email compromise (BEC) scams, is the second most devastating type of cybercrime, resulting in losses totaling $2.9 billion. These attacks involve the compromise of vendor accounts, unauthorized requests for sensitive information such as W-2 forms, and real estate frauds, highlighting the urgent need for strict email security protocols and employee awareness training.

The FBI ranked the top 10 states by losses in 2023. Figure 1 shows the top 10 states for cybercrime loss by dollar figure.

PROTECTING REAL ESTATE TRANSACTIONS FROM FRAUD

One of the most effective strategies in mitigating these risks is using attorneys specializing in private lending and commercial real estate transactions. These legal professionals are not title companies that are merely facilitators and settlement agents. The attorneys serve as critical safeguards against fraud. Closing attorneys play a pivotal role in ensuring the legitimacy of the transaction and documents submitted, securely managing the transfer of funds and scrutinizing the actions of the title company. By meticulously reviewing entity documents, conducting thorough due diligence, and overseeing the disbursement of funds, closing attorneys serve as a formidable barrier against fraudulent activities.

Larry Andelsman, CEO and managing partner of Andelsman Law, a New Yorkbased law firm focused on private lending and commercial real estate with more than 30 years’ experience in the industry,

Source: Federal Bureau of Investigation, Internet Crime Report 2023, p. 25

FIGURE 1. TOP 10 STATE LOSSES

discussed how closing attorneys protect their clients against fraud and offered best practice advice for the private lending community.

Andelsman noted that market conditions such as reduced credit liquidity, tighter credit parameters, and rising interest rates can increase the risk of fraud. In times of economic constraint, individuals and businesses may feel pressured to engage in deceptive practices to secure funding or alleviate financial stress.

“Simply stated,” Andelsman said, “when there are fewer deals in the market, brokers and fraudsters become more aggressive in their tactics to get their deals closed. Consequently, private lenders often feel pressure from the brokers that feed their

pipeline to push the deal through and close fast. Closing attorneys act as an additional, well-trained ally that can assist lenders, capital providers, borrowers, and brokers in preventing many common fraud schemes.”

As a result of increased and perpetually evolving deceptive practices, every transaction must be highly scrutinized. Real estate closing attorneys must proactively adjust their fraud detection policies to address these heightened risks, said Andelsman. “Conscientious attorneys continually review their due diligences processes to increase vigilance in transaction monitoring and refine their legal strategies to adapt to shifting environments. By staying ahead of evolving fraud schemes,

firms are better equipped to protect client interests and financial security.”

Andelsman said that in private lending, after wire fraud, the most common type of fraud his firm encounters involve fraudulent property flips and wholesale deals with inflated prices. “These are often supported by falsified documentation and accompanied by disbursements to parties benefiting from the scheme. Good closing attorney firms readily identify red flags and scrutinize all documents and parties to a transaction, usually seeing what others do not see.”

He pointed out that most title companies and their employees have little training and experience in this area; their role is to check that documents have been signed correctly

and that the numbers add up. Moreover, he explained, in some cases, the title companies are not actually title companies and are part of the fraud that is being perpetrated (for an example of this, see “A First-Hand Account of Our New Fraud Reality” published in Private Lender’s Summer 2024 issue). “As legal representative for the lender,” he said, “we scrutinize all parts of the transactions, including the acts of the title agents.”

USING TECHNOLOGY TO PREVENT FRAUD

Technology plays a crucial role in fraud prevention within the commercial real estate sector. Advanced encryption, AI technology, and secure communication platforms are increasingly being employed to

“ S imply stated, when there are fewer deals in the market, brokers and fraudsters become more aggressive in their tactics to get their deals closed.”

-Larry Andelsman

protect sensitive information and ensure the integrity of transactions. For example, blockchain technology offers a transparent and immutable ledger that can significantly

reduce the risk of document fraud by providing a verifiable record of ownership and transaction history. Blockchain technology exists in many of the loan

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operating systems, appraisal AMC platforms, and bank verification platforms such as Plaid.

A GLIMMER OF HOPE

The 2023 cybercrimes report offers a glimmer of hope: 2022 appears to have been the peak of fraudulent activity. Figure 2

shows a comparison of the past three years, reflecting reductions in 2023 of identity theft, real-estate-related cybercrimes, malware, and phishing/spoofing schemes.

Despite these advancements, the commercial real estate industry remains a prime target for fraudsters due to the large sums of

FIGURE 2. COMPLAINT LOSS COMPARISON 2021-2023

Source: Federal Bureau of Investigation, Internet Crime Report 2023, p. 23

money involved and the complexity of transactions. Preventing fraud in commercial real estate requires a multifaceted approach that combines legal oversight, technological innovation, and industry best practices. Education and awareness are key components in this battle, with all parties involved needing to stay informed about the latest trends in fraud and the best strategies to combat them. Collaboration among industry professionals, including real estate agents, attorneys, lenders, and title companies, is essential to create a unified front against these pervasive threats.

As the commercial real estate industry continues to evolve, so must the methods for preventing fraud. By embracing technology, leveraging the expertise of real estate closing attorneys, and fostering a culture of vigilance and transparency, the industry can better protect itself from the costly consequences of fraud. The stakes are high, but with the right tools and knowledge, commercial real estate professionals can safeguard their transactions and maintain the integrity of their investments.

MEGAN CASTLETON

Megan Castleton is a seasoned mortgage operations executive with over two decades of expertise in credit, risk management, and fraud prevention across both commercial and residential markets. She specializes in building and scaling mortgage operations, including guideline development, underwriting systems, and servicing.

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The Goldilocks Question: What’s “Just Right” for Enforcement?

AAPL’s Ethics Committee reviewed its code violation reporting requirements and internal handling procedures—here are the results.

AMERICAN ASSOCIATION OF PRIVATE LENDERS

The American Association of Private Lenders established the industry’s first Code of Ethics in 2015, requiring members to maintain standards of conduct a level above “not breaking the law.”

Although these guidelines may seem like common sense to many, they are a powerful tool for instilling borrower confidence in both individual private lending entities and our industry. Cultivating best practices also prevents further regulatory encroachment: “Where there’s smoke, there’s fire” is not an idiom we want legislators correlating with private lending.

NOT TOO HOT, NOT TOO COLD

During every two-year session, our Ethics Committee evaluates both the Code and our internal procedures to ensure we maintain a comfortable balance between protecting the public and shielding members from parties who seek to use our investigation process to express dissatisfaction with otherwise ethical outcomes.

The emerging theme for this year was transparency. To that end, we overhauled our public complaint guidelines to clarify when and how to file, what’s needed, and what happens from there.

Although we’ve maintained these expectations for several years, key clarifications are:

STANDING. The complainant must be directly involved in the potential violation, following the same practices as having standing to file a lawsuit. We will not start a witch hunt on unrelated claims.

EVIDENCE. Complainant parties must be able to defend their position with corroborating evidence, such as contracts, emails, witness statements, etc. On its own, the mere existence of a law enforcement investigation or lawsuit is not proof that a code violation has occurred.

RELATED LAWSUITS. If at any time during the evaluation process, there is an active lawsuit pertaining to any claims made in the complaint, it will be placed on hold until the court(s) reach a decision. This protects the involved parties’ attorney/client privilege and ability to effectively litigate.

You may see our complete guidelines at aaplonline.com/ethics/report-a-violation/.

TRYING IT ON FOR SIZE

The Committee also reviewed whether any factors that have cropped up

repeatedly should be formalized into policy, with the following priorities:

1 Protect our members from ”smear campaigns,” ”witch hunts,“ etc.

2 Protect the public from bad actors.

3 Protect AAPL’s reputation for fair, equitable, and impartial decisions.

WHAT KIND OF STANDING SHOULD A COMPLAINANT HAVE? Our policy has been that the complainant must be a “victim” of the alleged violation. We revisited this stance, discussing if a complainant:

» Discovers a court decision to which they were not a party.

» Witnesses or obtains ”evidence” of an alleged ethics violation that happened to someone else.

SHOULD THERE BE A STATUTE OF LIMITATIONS? The alleged violation happened “X” years ago, but the complainant just discovered:

» AAPL as an avenue for potential recourse.

» That the violation happened.

ARE THERE EXCEPTIONS TO THE “ACTIVE LAWSUIT” RULE? For example, a lawsuit’s existence is immaterial to the nature of the complaint and weight of proof represented in the corroborating documentation.

JUST RIGHT

The Committee determined that a “just right” response to each of these considerations is largely fact-dependent and is best served evaluated on a case-bycase basis with the following in mind:

SEVERITY. How egregious is the alleged violation?

AFFILIATION. How closely related is the alleged violation to our industry?

INTENTIONALITY. How likely is it that the alleged violation is willful?

IMPLICITNESS. How deep-rooted is the alleged violation, or is it likely a one-off incident?

RECOVERABILITY. How curable is the alleged violation?

FINALLY: OVERSIGHT MUST HAVE TEETH

Enforcement is what makes standards of practice meaningful. But it’s a delicate spot to be in, with AAPL balancing public, member, and industry interests. A universal truth is that the outcomes inevitably leave at least one party feeling the bite.

We protect our constituents, our reputation, and our industry by ensuring that bite is applied impartially, fairly, and for the right reasons.

AAPL is the oldest and largest national organization representing the private lending profession. The association supports industry best practices by providing educational resources, instilling oversight processes, and fighting regulatory encroachment.

SoBo Duplex Makeover Pays Off

A savvy investor salvages a rundown duplex in Denver’s SoBo neighborhood—and digs up a sizeable profit.

JAKE ROME, BACKFLIP CAPITAL

In Denver’s rising SoBo neighborhood, which has been transformed from a transportation corridor to a vibrant hub of boutiques, music venues, and restaurants, a rundown 1963 duplex sat waiting for a developer to tear it down for a $1.5-million-plus new build similar to so many others popping up around it. But an offer for the two units, each a twobed, one-bath floor plan, never came.

Instead, savvy investor Brian saw an opportunity to polish the well-placed diamond in the rough. He was able to

put a freshly-renovated home on the market well below the median price for the urban submarket—and he made more than a $180,000 gross profit on what he describes as “one of the best value–add investments I’ve ever done.”

FINDING THE DIAMOND IN THE ROUGH

Not all great deals are off market: Brian found the property on the MLS. Listed as “land” by an agent who deemed it unfit for renovation, other flippers overlooked it. By using the keyword “development”

in his search, Brian discovered the listing and recognized its potential.

“We negotiated on the place for four months,” Brian said. “They were selling it as a development opportunity but were missing the mark. They thought somebody was going to come in and offer the moon, but it was right as interest rates were turning and developers were sitting on their hands. I told them, ‘I can save this thing. I don’t need to tear it down.’”

Originally listed for $629,900, Brian bought it for $504,900 in March 2023.

Located in Denver’s rising SoBo neighborhood, the duplex was situated in a highly desirable residential location. Brian surmised he could bring something new to the market at a much more affordable price point, allowing someone “to get into this area without having to spend a million bucks on half a duplex.”

STRATEGIC PLANNING AND FINANCING

Brian’s experience in construction allowed him to identify most of the necessary repairs during his walkthrough (e.g., a new roof and cosmetic updates). Knowing the importance of infrastructure, he also included a sewer line inspection in his offer. A Backflip loan of $562,000 covered most of the purchase and all the renovation costs.

MODERNIZING

Brian and his wife designed the renovation, opting for a modern aesthetic with a touch of tradition. They hired a general contractor to oversee the project but actively participated in the process. The seven-week renovation was extensive, encompassing a new roof, sewer line, windows, flooring, drywall repair, updated cabinets with quartz countertops, new appliances in both kitchens, bathrooms with tiled showers, vanities, toilets, and landscaping. Essentially, everything was brand-new, ensuring move-in readiness for buyers.

“We flew through it. I hosted an event with Backflip at the house while we were doing the renovation. I wanted to grow my local network. So, I was happy for the opportunity to share how I found

LOAN DETAILS

Lender // Backflip Capital

Location // Englewood, CO

Walk Score // 76

Architecture Style // Duplex

Size // 1,778 square feet

Year Built // 1963

Purchase Price // $504,900

Loan amount // $562,000

LTV // 69%

Rehab Cost // $120,000

Exit Price // $809,000

Gross Profit Margin // $184,100

Exit Strategy // Renovate and sell

the place and try to help others looking for the same thing,” Brian said.

A PROFITABLE EXIT STRATEGY

Brian initially planned to hold on to the property and generate rental income. After realizing he would be moving out of state, he chose to sell instead. Listed for $799,000 in May 2023, the property sold at $809,000 within weeks—an impressive 30% increase in value over Brian’s cost basis.

The property’s walkable area and its two separate units, perfect for young professionals seeking a convenient and trendy location with top-rated eateries and shops and a vibrant nightlife, undoubtedly contributed to its swift sale.

The new owner of the property lives in one unit and rents out the other for $2,350 a month (11% below area average). With

the rental income, the owner’s monthly overhead is around $2,100. Two households are able to live in a neighborhood where the PITI (principal, interest, taxes, and insurance) payments on a new construction are closer to $5,000 per month.

LOOK BEYOND THE OBVIOUS

By combining strategic thinking, skillful negotiation, and a hands-on approach, Brian’s Denver duplex renovation exemplifies the upside for savvy investors who recognize value where others might see only a teardown.

“Don’t be afraid to look beyond the obvious. You can still find deals out there,” Brian told the audience at his Backflip event. “And focus on affordability to keep your options open.”

Jake Rome is a founder and the COO of Backflip, a fintech platform that empowers real estate entrepreneurs to rejuvenate homes. He is a seasoned real estate operator and institutional private equity investor with more than $2.5 billion of real estate transaction experience in markets across the world.

Prior to Backflip, Rome was the founding partner of a tech-enabled “flexible-living” apartment platform that raised more than $350 million of equity and was acquired by one of the world’s largest family offices.

JAKE ROME

LIQUIDITY SOLUTIONS FOR PRIVATE LENDERS

2 DAYS EDU & NETWORKING

50+ SPEAKERS & PANELISTS

70+ SPECIALIZED VENDORS

700+ LENDING PROFESSIONALS

The American Association of Private Lenders was established in 2009 at our first event in Caesars Palace Las Vegas, in the company of a small caucus of industry leaders with the foresight to know the private lending profession would not flourish without guidance, oversight, and ongoing support.

Fifteen years later, we still meet annually at Caesars Palace, but our gathering has grown to well over 700 strong. #AAPLANNUAL is where executives meet to take the pulse of the industry and plan pivotal business dealings.

Beyond the conference, your attendee and sponsorship dollars drive key initiatives year-round. These projects safeguard your business’s future and provide you with tools and resources. We love a good win-win, and there is no better opportunity than with AAPL’s Annual Conference.

MEET YOUR HOSTS

EDDIE WILSON Chairman

KAT HUNGERFORD

Digital Project Manager Executive Editor

LINDA HYDE President

SHAYLEE HENNING Marketing Manager

Vice Chairman

CHRISSY SPENCER Executive Assistant

ANTHONY GERACI

ACTIVITIES

Year after year, our conference is touted as the industry standard for collaboration, must-attend sessions, and acclaimed networking activities.

CONFERENCE SESSIONS

Featuring main-stage presentations and three congruent tracks totaling more than 15 education- and marketfocused sessions, #AAPLANNUAL offers a multitude of options to learn from more than 45 top-of-theirfield experts. Sessions are also video recorded so attendees can later revisit key moments they didn’t catch live.

PRIVATE LENDER ROUNDTABLES

This year’s #AAPLANNUAL marks our sixth gathering of the beloved Private Lender Roundtables. Participants divide into groups to discuss strategies and operational tactics while creating a lasting, intimate network of like-minded cohorts.

DESIGNATION COURSES

Two certification options, Certified Private Lender Associate (CPLA) and Certified Fund Manager (CFM), each provide AAPL-backed credentialing to members via a full-day, classroomstyle learning environment followed by a rigorous exam.

Eddie Wilson’s State of the Association opener at the 2023 Annual Conference welcomed recordbreaking, standing-room-only attendance.

Curated panels offer a breadth of expertise and insight with speakers addressing industrycritical subjects from diverse perspectives.

Rub shoulders (literally—it’s packed every year!) at the exclusive VIP Reception.

No quiet vendor hall here—hustle and bustle keep the atmosphere hopping.

Foyer networking tables are a quieter place to meet.

Tackle challenges and connect with peers at the sixth gathering of our roundtables.

NETWORKING

PRE-, DURING, AND POST-CONFERENCE

AAPL Annual Conference App // Post to the Wall, see who’s attending what, and chat with attendees. Our “shake-to-connect” widget allows you to exchange contact information with anyone who is also actively using the feature.

SUNDAY, NOV. 10, 7 PM

VIP Reception at the OMNIA // Enjoy cocktails and hors d’oeuvres while catching up with VIPs from across the country, all overlooking the gorgeous Las Vegas Strip from the OMNIA’s private deck. This exclusive reception is RSVP only; confirm your entry via the AAPL Annual Conference App.

MONDAY, NOV. 11, 7:30 AM

Networking Breakfasts, Breaks, and All-Day Coffee // If the cooler is networking central at the office, cuisine and coffee are the conference watering holes. This year, Andelsman Law keeps you fueled with food while your caffeine buzz comes courtesy of The Mortgage Office and Center Street Lending.

MONDAY, NOV. 11, 6 PM

After-Hours Reception // Continue conversations at this after-hours networking reception where attendees, sponsors, and speakers mingle while enjoying complimentary bites and two drink tokens.

MONDAY, NOV. 11, 7 PM

Official After Party // Not ready to turn in? Business Purpose Capital and Fastapp Appraisal Management are hosting our official After Party in the Caesars Palace Stadia Bar.

MONDAY, NOV. 11, 10 PM

Official After After Party // STILL not ready to turn in? Join Roc Capital for live music and drinks in The Pinky Ring by Bruno Mars at the Bellagio.

SPONSORS

We love a good win-win, and there is no better opportunity than with #AAPLANNUAL. Each year, we bring best-inclass education, networking, and collaboration to event attendees and sponsors alike. Beyond the conference, you can trust sponsorship dollars are used to drive key industry-building initiatives year round. Thank you, sponsors!

AND THE TITLE GOES TO ...

PLATINUM

GOLD

EXHIBITORS

24HR INSPECTIONS

ANDELSMAN LAW

CENTER STREET LENDING

CLS CAPITAL

CMI FINANCIAL GROUP

CONSTRUCTION INSPECTION

SPECIALIST, INC

DECIPHER

DEEPHAVEN MORTGAGE

DUNER AND FOOTE

EGNYTE

FCI LENDER SERVICES

GODOCS

IGNITE FUNDING

KENNEDY FUNDING

ALL OTHERS

BRIDGE LOAN NETWORK

DEBTWIRE

LA MESA FUND CONTROL AND ESCROW

LENDINGDOCS

LIMA ONE CAPITAL

LOAN SOURCE, LLC

LOANPASS

MONJA

MOVE

MTS GROUP, LLC

NAN

NOTE SERVICING CENTER

OBIE INSURANCE

OLYMPIA FINANCIAL

PRIVATE MORTGAGE FUND, LLC

SBS TRUST DEED NETWORK

SERVICING PROS INC

SITEWIRE

SMART MONEY BLUEPRINT

SUPERIOR LOAN SERVICING

THE SERVION COMMERCIAL LOAN RESOURCES

TRINITY REAL ESTATE SOLUTIONS (FORMALLY NWCC)

TRUEPIC

XACTUS

LIGHTNING DOCS

PRIORITY TITLE

SCOTSMAN GUIDE

SILVER

EXCELLENCE AWARDS NOMINEES

As champions for the private lending industry’s reputation and growth, it’s crucial for AAPL to recognize those who look beyond their own businesses to help our mission. Our Excellence Awards showcase peernominated members who have leveraged their resources to solve problems, kick-start innovation, and improve their communities.

COMMUNITY IMPACT

This award honors professionals who improve their local communities or our industry through volunteering, development programs, or civic efforts.

JOHN BEACHAM, TOORAK CAPITAL PARTNERS

“Since John’s launch of Toorak, the company’s financing has had a significant impact on the improvement of communities across the country: It has provided families in need with good, quality places to live and enabled entrepreneurs to build and grow their own businesses. The company has provided more than $13 billion in capital and funded over 35,000 mortgage loans. Toorak-funded projects are expected to renovate, stabilize, or provide rental housing for over 50,000 families. In February 2024, Toorak announced the successful closing of the first-ever rated residential transition loan (RTL) securitization. Toorak’s securitization has broadened participation in the RTL market by making it accessible to the bulk of the fixed-income investor base which requires ratings.

“John holds leadership roles throughout the industry, including the American Association of Private Lenders ethics committee, the National Private Lenders Association, and Habitat for Humanity of Hillsboro County, where he recently donated funds to support construction of a new home in Tampa, Florida. He has worked to remove the stigma of “hard money” by publishing articles and speaking on the subject, and he has helped professionalize the space.” – Eli Novey, Toorak Capital Partners

SCOTT WARD, THE WARD CO

“Scott has distinguished himself through his exceptional ability to bring people in the industry together and connect them with the right companies. His expertise in linking brokers with funds and capital resources has been invaluable in getting loans approved and finalized efficiently. Scott is always ready to offer helpful information and support, ensuring brokers have access to the funding companies they need. His honesty, trustworthiness, and extensive industry knowledge make him the go-to person for anyone seeking guidance and connections in the mortgage sector. We look at Scott as the guy to know in the industry, and his remarkable efforts have significantly enhanced the professional landscape for many. His dedication to fostering collaboration and sharing resources truly sets him apart.” - Dru Barrios, Coast Life Capital

MEMBER OF THE YEAR

This award goes to an AAPL member who demonstrates expertise, unique value, and commitment to the industry.

ADONIS LOCKETT, LNH CAPITAL

“Adonis gives tirelessly to people in the ethics and fair-trade practices of private money lending.” - John Litton, JGL Capital

BILL MITCHELL, LOANPASS

“LoanPASS is emerging as the leader in loan decisioning and pricing technology for private lenders. Bill is at the center of our success story and, more importantly, the success of our lender and investor partners. He’s passionate about helping AAPL members, and it shows in our 185% customer growth and wildly satisfied clients.” - Mike Lewis, LoanPASS

KENDRA ROMMEL, FUTURES FINANCIAL

“Kendra and the Futures team are some of the hardest working in the industry. Innovative, strong, and loyal, Kendra continues to innovate for women in our space, including leadership roles in WPL. She champions growth and lifts others as she rises, a true standard of leadership.” - Megan Castleton, Essencap Funding

JOHN SANTILLI, REHAB FINANCIAL GROUP

“John is dedicated to propelling the industry, creating a unique product serving a badly needed gap in the industry, and elevating awareness and education of current pressing trends in the market to improve the association members and his colleagues!” - Sam Kaddah, Liquid Logics

BROCK VANDENBERG, TALIMAR FINANCIAL

“With years of experience, Brock has not only mastered the private lending space but also become a go-to resource for both colleagues and clients. Brock embodies the qualities of a true leader: knowledgeable, adaptive, and committed to the success of others. He sets the benchmark for excellence in the industry.” - Sarah Zybura, TaliMar Financial

JENNIFER WALTON, SERVICING PROS

“Jennifer exemplifies excellence in many ways, specifically her vast knowledge of our industry standards and best practices at both high and detailed levels. She is able to execute corporate goals down to a simple task with the same energy and precision. Her commitment and work ethic—to herself, her company, her clients, and our industry are admirable. Jennifer would be an ideal recipient of this award.” - Robin Aldridge, Trilion Capital

EXCELLENCE AWARDS NOMINEES

RISING STAR

Rising Stars are members who have accomplished outstanding growth in their companies during the past year.

ALYSSA ANTOCI, ASSET BASED LENDING

“As ABL’s first hire following their acquisition in 2022, Alyssa was tasked with leading recruiting efforts. She grew ABL’s employee base from 30 to 120 employees in two years, shaped ABL’s culture, and built the HR department, creating a solid foundation for scaling the company. ABL’s rapid growth led to its recognition on the 2024 INC 5000 list, placing #2,672 with a growth of 190% over the past year.

“In 2023, Alyssa developed scalable infrastructure in the processing department, creating a roadmap for efficiency and ultimately transitioning responsibility to a new Head of Operations. She was promoted to senior vice president in December 2023, continuing to oversee previous responsibilities and guiding strategy execution with ABL’s CEO. She is also a member of ABL’s management committee, bolstering her ability to aid ABL’s growth across business units. Further, in 2024, Alyssa took on the challenge of rebuilding ABL’s marketing department.

“Alyssa’s ability to create and implement scalable strategies across different departments and her commitment to team development highlight her leadership and value to ABL. She is a team player, a critical trait for a growing a business like ABL. Her crucial contributions to ABL’s success make her a deserving Rising Star nominee.” - Parker Molello, Resound Marketing

STAFORD FRANÇOIS, COHNREZNICK

“Staford’s deep expertise and knowledge are vital to our success in the private lending industry, particularly in supporting our fund manager clients. His ability to navigate complex issues with exceptional service consistently gives us peace of mind, knowing our clients are in good hands.

Staford’s invaluable contributions have been instrumental in driving our success, and his hard work, dedication, and willingness to go above and beyond make him thoroughly deserving of this recognition.” - Jennifer Young, Geraci LLP

It means something to be excellent.

Our annual Excellence Awards are the gold standard among industry professionals. These association-backed honors carry the weight of AAPL’s 15-year reputation for safeguarding the industry with education, ethics, and advocacy.

KEN JACOBSON, CV3 FINANCIAL SERVICES

“Ken’s ability to champion CV3’s capital markets division and earn the confidence of the secondary markets was vital to the company’s successful launch in 2023. His tenacity, dependability, and integrity have enabled CV3 to execute its capital and liquidity strategy to scale the company beyond expectations.

“Today, Ken is responsible for day-to-day pricing of a more than $300 million pipeline while managing daily financing, loan sales, and aggregation of CV3’s entire loan volume. His deep-rooted relationships and expertise in secondary markets for business purpose loans as well as his extensive experience in securitization financing position Ken as an inspirational leader who brings tremendous value both to the company and to the industry at large.” - Elizabeth Hillestad, CV3 Financial Services

RODNEY MOLLEN, RICHERVALUES

“Rodney is an innovative leader in the real estate industry. He is a thought leader, which he has demonstrated through his multiple AAPL articles that are truly insightful.

“As the CEO and leader of RicherValues, he continues to guide us to year-over-year growth, and we continue to stay on the top of innovation with the various amazing products we are bringing to the industry.”

- Ryan Mollen, RicherValues

SHAYE WALI, BASELINE SOFTWARE

“Shaye Wali has consistently pushed the boundaries of the private lending industry, driving innovation and setting new standards that others strive to follow. His relentless pursuit of progress and unwavering dedication to the professionalization of lenders have elevated the entire sector.

“Shaye’s commitment to raising industry standards is most evident in his patient and devoted approach to teaching and mentoring others. He actively invests in the growth of his peers, generously sharing his deep knowledge and insights. By equipping nextgen lenders with the skills and understanding they need to succeed, Shaye ensures the industry’s future is bright. His dedication to continuous learning and professional development has earned him widespread respect and admiration.

“Through his advocacy for higher industry standards and his provision of the tools and education necessary to achieve them, Shaye has raised the bar and fostered a culture of excellence that permeates the industry.

“In summary, Shaye Wali’s unique combination of visionary leadership, commitment to education, and relentless drive for progress makes him an exemplary candidate for the Rising Star award. His contributions have already left a lasting mark, and his ongoing efforts promise to shape the industry for years to come.”

- Sergio Santinelli, Baseline Software

FALL GUIDE

If you’re looking for a service provider with real experience working with private lenders, this guide is your starting point.

In each issue, we publish a cross section of specialties. These providers do not pay for inclusion. Instead, we vet them by reviewing their product offerings and talking to private lender references.

AAPL members can access all vendors online at aaplonline.com/vendors.

» Accounting

» Business Consultants

» Default & Loss Mitigation

» Legal Services

» Warehouse Lenders

» Appraisers & Valuations

» Capital Providers

» Data

» Environmental Services

» Lead Generation

» Note Buying/Selling

» Brokers

» Funds Control

» Loan Origination Services

» Loan Servicing

Granite Risk Management graniteriskmanagement.com/ Secondary Specialties Funds Control, Fund Administration Products & Services

» National end-to-end full residential and commercial construction management

» Draw management

» Project feasibility studies

» Contractor reviews

» Discounted title and escrow services

Partner Engineering and Science, Inc partneresi.com (800) 419-4923

American Association of Private Lenders aaplonline.com (913) 888-1250

Products & Services

» Annual conference

» Quarterly magazine

» Online and classroom-style private lender associate and fund manager courses

» Webinars

» Compliance and legal resources

» Downloadable guides and templates

Geraci Conferences geracicon.com (949) 379-2600

Products & Services

» Networking

» Raising capital

» Deal flow

» Education for private lenders

» Lead generation

National Lending Experts nationallendingexperts.com (619) 865-3177

» Development Cost Estimates

» Education » Fund Administration

» Insurance

» Marketing

» Recruitment & Headhunting

Fintech Nexus fintechnexus.com/ (646) 971-1645

IMN

imn.org (212)-224 -3987

High Divide Management highdividemgmt.com (816) 807-4039

Secondary Specialties Accounting Products & Services

» Maintain general ledger (i.e., bookkeeper)

» Prepare financial statements and footnotes

» Support audit process

» Calculate partner allocations and waterfalls

» Manage LP reporting

w

Socium Fund Services

sociumllc.com (973) 241-3300

Products & Services

» Fund launch consulting

» Portfolio system access 24/7/365

» Comprehensive portfolio reporting and UDFs

» Fund accounting and admin

» Fee calculations

» Investor services

» Electronic subscription processing

» Tax and compliance

» OID and PIK calculations

Anderson Agency andersonagency.group (812) 887-0443

Products & Services

» Property

» Flood

» REO

» Lender-placed insurance

National Real Estate Insurance Group affiliate.nreig.com/AAPL (888) 741-8454

Products & Services

» Residential insurance for owneroccupied, non-owner-occupied, renovation, and vacant property

» Commercial insurance

Priority Title & Escrow prioritytitleus.com (757) 300-2526

Secondary Specialties

Data, Default & Loss Mitigation

Products & Services

» Nationwide coverage for purchases, refinances, and reverse mortgages

» Commercial

» Residential construction, renovation, fix and flip, and DSCR

» Portfolios (single or multiple state properties)

» LLCs, trusts, and non-US owner/ foreign transactions

» REO services, deed in lieu of foreclosures, and default

» National signing and recording services

Ross Diversified Insurance Services, Inc

rossdiv.com (800) 210-7677

Products & Services

» Nationwide property insurance

» Lender-placed insurance for commercial and residential

» REO insurance for commercial and residential

» Insurance monitoring

» Investment insurance for 1-4 units, including rentals and rehabs

BSP Insurance Non-Member Company A bspinsurance.com (203) 237-7923

Liberty Title & Escrow

libtitle.com (401) 529-4773

Realprotect realprotect.com (800) 579-0652

Go Media trygomedia.com (470) 878-2000

Products & Services

» Marketing

» Campaigns and sales funnels

» Web design and development

» Graphic design

» Video production

» Special packages available for AAPL members

iFocus Marketing ifocusmarketing.com (913) 578-8521

Products & Services

» Ad targeting services

» Household

» Geofence

» Retargeting

RetroCurrent Marketing

Retrocurrentmarketing.com (470) 208-0433

Products & Services

» Full-service marketing suite

» Strategy planning

» Content capture

» Media management

» Ad buying

KallistoArt kallistoart.com (813) 563-5321

KC & CO Communications KCCOPR.COM (202) 630-3215

Huffman Associates huffmanassociates.com (631) 969-3600

Ifeel like I grew up in the businesspurpose lending world. In 2014, I was on the ground floor of an exciting and fast-moving organization called Civic Financial Services. I was 25 years old with no wife or kids, no mortgage, no real responsibilities—except working my ass off and chasing success with our new business.

We found success by scaling the company, selling it, and ultimately originating approximately $10 billion worth of loans from 2014 through 2022. During that period, our industry matured, and I matured alongside it. I got married, had two kids, got two dogs, took on that mortgage, and gained a bunch of responsibilities. In 2023, I started a new lending company called Consistent Capital, based out of Charleston, South Carolina.

I’ll be the first to tell you that I don’t know everything—not even close. But through this roller coaster of maturation, I have learned some valuable lessons. What’s most important, you ask? Relationships.

If I hadn’t focused on developing key relationships throughout my life and

A Fresh Take on “Who You Know”

From early career lessons to business owner ups and downs, here’s what I’ve found to be fundamental.

WHIT MCCARTHY, CONSISTENT CAPITAL

career, there’s no way I would have had the confidence to forge my own path.

RELATIONSHIPS WITH YOUR TEAM

Take the time to understand the members of your team. When you genuinely care about their well-being, their families, and so on, you’ll build an unshakable loyalty. Treat those leaving your organization with the same respect you give to those joining it. And, if you’re the one leaving or being let go, be respectful.

RELATIONSHIPS WITH YOUR COMPETITORS

Build relationships with the people you compete with every day. It can be tough when you feel like you’re constantly engaged in hand-to-hand combat, but that competitor may be a future employee, employer, referral, capital source, strategic partner, etc. There’s plenty of business to go around, so be kind and respectful. It’s a very small world, and your reputation in the industry is incredibly important if you want to stick around and be successful.

INDUSTRY RELATIONSHIPS

Get to know industry vendors, service providers, and others. You never know

when you might need their help or services. The AAPL Conference is a great place to start this!

RELATIONSHIPS WITH FRIENDS AND FAMILY

Your friends and family should be your greatest support system. They are the reason we do what we do. Celebrate your wins with them and seek support during your losses.

RELATIONSHIP WITH YOURSELF

This business has its ups and downs. One day you feel invincible; another day, you feel like you just went five rounds with Mike Tyson. Remember not to align your self-worth with the cycles of your business.

Create separation between work and home. Find a way to recharge your batteries. Know your limitations, and surround yourself with people who are better than you.

The relationships we build and the resilience we foster ultimately define our success. We can navigate the ups and downs with confidence and purpose by staying grounded, focusing on what truly matters, and continuously learning.

Geraci LLP is a full-service law firm and conference line specializing in representing non-conventional lenders.

CONNECT WITH US

(949) 379-2600

90 Discovery Irvine, CA 92618

https://geracilawfirm.com/ https://geracicon.com/ https://geracilawfirm.com/originate-report/

CORPORATE & SECURITIES

• Securities Offerings and Compliance

• Entity Formation and Governance

• Corporate Transactions and Combinations

• Mortgage Licensing

BANKING & FINANCE

• Nationwide Loan Document Preparation

• Foreclosure and Loss Mitigation

• Nationwide Lending Compliance

• Capital Markets Agreements and Negotiation

LITIGATION & BANKRUPTCY

• Foreclosure Related Litigation

• General Business Litigation (Partnership, Investor, and Vendor Disputes)

• Creditor Representation in Bankruptcy

• Other Mortgage Loan Litigation

• Collection Actions

• Defense of Claims from Borrowers

• Replevin

OTHER SERVICES

• Captivate

• Innovate

• Originate Report Magazine

• Lender Lounge Podcast

NOV. 10-11 2025 | LAS

VEGAS

2 DAYS 50+ SPEAKERS 70+ VENDORS 800+ ATTENDEES

Join us for the 16 year as we bring together owneroperators, executives, and decision-makers for the industry’s premier education and networking conference.

AAPL Certification Courses | VIP Nightclub Reception

Networking Breakfasts | 15+ Sessions & Panels

Private Lender Roundtables | Packed Vendor Hall

Networking Reception | After Party