Defaults - The Stories

Take Risks by the Horns

Investors and employees alike put me on a pedestal with the expectations that a default should never happen. Never say never, as investments have risk and defaults do happen. There are inherent risks with all types of investments and trust deed investments are no different. Mitigating risk is my commitment to all investors and employees. You may recall in my earlier blogs, I mentioned that I have no formal education in the field of real estate except my 15 years of street-smart experiences. You may also recall I hired someone who did have the experience in real estate underwriting, so I could focus on the overall operations of the company making us a dynamic duo. He handles the analytics and we tag team handling the borrower business strategies and personal relations on the onset, during lending cycle and in cases of default. We have learned over the years that working together as a team has mitigated the risk of the investments and, as such, been financially rewarding to investors. As of September 16, 2020, we have produced over $808 million in investments with a total of .50% default rate, and this did not happen with luck.

“Never say never, as investments have risk and defaults do happen. Mitigating risk is my commitment to all investors and employees.”

During the last 10 years there have been 3 historic defaults. Motion Properties, Tailor Built Homes and Caldwell Investments. All three have a story and lessons learned that have allowed us to sharpen our skillset.

The Stories

Motion Properties | The strategy of the borrower was changing from a fix and flip model to a new home builder. The borrower had been acquiring land at a discount post real estate collapse in 2008. The borrower was refinancing all land holdings not to advance the new strategy, but to refinance with a cash out refinance strategy leaving lenders holding the bag of approximately $40 million collectively in assets.

Tailor Built Homes | The strategy of the borrower was to leave public home building life to start their own home building company. Starting small came naturally, but as they grew they hired what they thought they needed during expansive growth only to find out that just because a person looks good on paper does not mean they can perform the job and, most importantly, be honest when managing millions of dollars. The mismanagement of funds was their demise and ultimately resulted in losses to investors.

Caldwell Investments | The borrower was incorporating apartment complexes as a portfolio hold strategy on the heels of a successful fix and flip home model. The accumulation of apartment complexes came fast and furious, ultimately overwhelming the internal systems/controls with the significant amount of work to remove all tenants, rehab the units/building structure and put renters back in place, all while an interest clock was ticking.