Borrowers With Special Needs

In the last installment we talked about the circumstances of the “typical” borrower—who he is and what he needs. But there are other typical borrowers who have special circumstances that create the need for a “hard money” or private money loan. When more people can secure loans, the number of trust deed investment opportunities rises.

Death, taxes, severe illness, unemployment and divorce are some of the most common unforeseen occurrences that can derail an otherwise responsible person and ruin his chances to obtain a traditional bank loan. Therefore, non-institutionalized lenders with more options and the freedom to include other criteria besides a FICO score are an attractive alternative.

What are some of the situations and circumstances of these borrowers?

Poor credit rating– In the times we live it’s not uncommon to find that most people are being left out due to imperfect credit. Any number of reasons including the aforementioned and more can be the culprit. Most people don’t actively engage in willful behavior that ruins their credit. However, once a borrower’s credit score takes a nosedive, his ability to buy anything on time becomes greatly impaired—even if his unfortunate situation has been resolved.

Bankruptcy– Obviously this one is serious and once a borrower has filed for bankruptcy it will be a long, long time before he can qualify for a bank loan again—if ever.

Irrevocable Trust—Once a trust is set up, it cannot be revoked without the consent of the beneficiary in most cases.

Tax and other leans—Estate, federal and state tax liens, property taxes and other judgments can work great hardship on a borrower.

Foreclosure—Nothing hurts a credit score more than a previous foreclosure on a home or property. And nothing makes it harder to obtain another loan. Even bankruptcy does less damage.

Trusts, probates, etc.—Inheriting a mountain of debt isn’t exactly conducive to good credit and neither is having money tied up in trusts a benefit.

Divorce—Some one will lose everything and someone will gain. Sometimes both parties are heavily in debt and with few resources after a divorce.

Unemployment— A borrower who loses his job is losing his livelihood and everything that implies—including his good credit standing.

Health and medical emergencies—One of the most common credit destroyers is an unpaid medical bill. They are quick to go to collection and they are often exorbitant.

Certain characteristics of the property in question may make it difficult to secure a bank loan. For example, as in the case of an income property that requires a high-vacancy loan in order to increase the occupancy. Or buildings not fully constructed or are very near completion. Retro construction to reinforce against natural disasters or improvements to the property for other reasons can make it difficult for a borrower to get a loan.

Private money lending is often the solution, which is another reason why trust deed investing is so smart for our time. Banks are faltering and bank loans are too stringent for the average borrower. Private money lending is where it’s at and trust deed investments are an integral part of that system.