Avatar's Blog

Once you have received closing documents from Avatar Financial Group, forward the package to your attorney. She or he will review the documents and write a brief Opinion Letter addressing the issues at stake, including whether the documents and agreements presented are enforceable in your state, whether you are authorized to commit to the documents, etc. By alerting your attorney to this task in advance, you can help to reduce the time you will need to wait to obtain the Opinion Letter, thereby speeding your funding process.

Ah - the quick sale appraisal. So many borrowers and brokers note, "But we already have an appraisal. I just got one!" Hard money lenders need to send out their own appointed appraiser to determine the quick sale value of the subject property. It's not that the appraisal you have is not good. It's just that it is a retail value appraisal. It assumes that the seller of the property has time to wait for the 'right' borrower to come along and purchase the property.

In the event that a loan goes sour, the subject property, being collateral, will be sold off to recoup the principal and interest owed on the loan. In that event, the hard money lender needs to sell the property relatively quickly. They are at the disadvantage of not being able to keep their capital tied up in a non-performing loan property. They must sell wihtin a few months at the most and move on to perform the business of their core competency, which is lending, not real estate ownership or management.

The appointed appraiser will walk the subject property, review existing appraisals, look at comps in the area, review recent sales in the area, consider the number of uses the building might have which gives an indication of the number of potential buyers for the property, consider increasing, steady or decreasing land and property values, etc. The result will determine what the property would sell for quickly - this is known as the 'quick sale value' of property and is used for the basis of the hard money loan.

Hard money loans are generally funded for companies, rather than individuals. If your company will receive the funds and be responsible for making monthly payments, etc. Avatar will need to know something about the company that they will lend the money to. Entity documents are the documents you receive when you form the company. The entity document indicates whether this is an S or C corporation, an LLC, LLP, non-profit organization, etc.

Corporate resolutions are a pack of papers containing about 10-15 pages. In it, you will find the corporate or organizaiton officers. Who is authorized to sign for the hard money loan and commit the group / corporation / organization to the terms and conditions? The corporate resolutions provide the answers.  A full copy of those documents will be needed for closing.

A certificate of good standing simply indicates that the organization or group has registered this year with the proper government authorities and received acknowledgement of their 'good standing'.

Two years prior tax returns. Unless you do not file your tax returns at all, you should have no trouble with this request. Be sure to make complete copies of the returns and sign the bottom of the first two pages in blue ink, so anyone will know these are original signatures. Initial all the remaining pages. Remember, Avatar is not looking to see that you have paid a great deal in taxes. They are looking to see that you are who you say you are, and that you are living 'on the grid', as it were.

Financial Statements provide part of what might be called the 'meat' of your loan pacakge at Avatar Financial Group. The financial statement can be downloaded as part of the Comemrcial Loan Application at: /www.avatarfinancial.com/pdfs/Avatar%20Loan%20Document%20Packet.pdf or you can request one via email from gillian@avatarfinancial.com.

The form can seem daunting. Take it 'in chunks', just a few questions at a time. You will find that the questions are clear and fairly simple to answer. You will want to have your financial documents at your disposal while filling out the forms, so don't take them along with you on a plane ride and expect to be able to provide all the info, unless you have an amazing memory for numbers!

The value of your real estate holdings, bank accounts, etc. can be readily obtained. The form may be a bit tedious, but it is not difficult. Include whatever you can think of. There is no such thing as too much information when listing your assets. Be honest and complete about your liabilities as well. Contact Avatar if you are unsure about a question. We can help you complete the form quickly and efficiently.

Aside from forms which merely require your signature, a Use of Proceed Letter is probably is the easiest item to provide a hard money lender for inclusion in your completed loan package. Create a short letter - you can use the form located in the Commercial Loan Application on Avatar's website at: www.avatarfinancial.com/pdfs/Avatar%20Loan%20Document%20Packet.pdf

Write a short statement of just one or two sentences that indicates what you will use the proceeds of the loan for. Include any payoff of existing mortgages, if this is a refi. If it is a cash-out refi, include a brief overview statement of how those funds will be spent. Statements such as "working capital for XYZ Company", or "improvement of subject property", "inventory purchase to meet existing contracts", etc. are good examples of what Avatar is looking for in this letter. There is no need to get extremely specific or provide a list of exact dollar accounts of the proceeds.

Form 4506 is an IRS form that gives permission for a third party to request and receive a copy of your past tax returns. While Avatrar Financial Group does not lend money based solely on the information in your prior tax returns, review of those returns is part of the due diligence process. Tax returns help to validate financial information provided in Profit and Loss statements before the Letter of Intent was issued. Many borrowers worry that their tax returns will not provide a full picture of income and will negatively impact their loan package. In truth, hard money lenders are financially savvy people who understand how these varying financial documents, which serve different purposes, meld to form a more complete picture of income, cash flow, tax payments, etc. A wise business person does not pay more tax than is due. Hard money lenders know that.

Avatar Financial Group is an institutionally funded hard money commercial lender. We require that a current copy, pulled by Avatar, of the borrower's credit score is in the files beofre closing. We do not lend money based on the credit score. The purpose of obtaining the record is to confirm the validity of the request by the borrower. It helps to provide a complete picture of the borrower. In many cases, borrowers come to Avatar for a commercial loan to bridge the gap between a time when their credit scores are low and the time when they have improved those scores are able to obtain conventional mortgage financing.

The Credit Authorizaiton Form takes only a moment to sign and is one of the simplest requirements to fulfill in the loan package required by Avatar before funding. Sign in blue ink, so that anyone will know that the page contains an original signature.

Avatar Financial Group is not a no-doc lender. We are considered a low-doc hard money commercial lender. We lend money for comemrcial purposes using real estate as collateral. At closing, the following documents must be in your loan folder for funding to take place:

1. Signed Credit Authorization form
2. Signed Form 4506 tax form request
3. Signed Use-of-Proceeds letter
4. Signed Financial Statements
5. Signed prior 2 years tax returns
6. Signed Entity Documents: Corporate Structure Statement, Corporate Resolution, & Certificate of Good Standing
7. Quick-Sale Value Appraisal ? Avatar will order this
8. Opinion Letter by borrower's attorney addressing the validity and enforceability, authority of the entity and signers to complete the transaction
9. Insurance Information - name and phone number of agent
10. Title Report provided by a national title company
11. Survey
12. List of equipment and inventory
13. Payoff Documents, if applicable

Don't let the list daunt you. Items 1 & 2 are forms that are provided by Avatar and merely require a signature. Avatar will take care of the appraisal. A call to the bank is all that is needed to get a payoff document. If you bought or are buying property, you will have a title report, survery and probably a list of equipment and inventory already prepared. Review the complete list and make the necessary calls to get the documents as early as possible, so you can get funded as quickly as possible.

As with any other loan, refinancing a hard money loan requires a pay off notice from the burrent lender to the new lender. Have your new lender contact Avatar Financial Group at the corporate office and request a payoff notice. It's that easy.