Avatar's Blog

» Understanding the Due Diligence Process

Posted on 1/4/2006

After a Letter of Intent is issued by a hard money lender, the next step is the due diligence process. Due diligence at Avatar FInancial Group consists of the following:

  • Review of any existing appraisals and a review of the property by Avatar's appointed appraiser. The appraiser determines the reasonable quick-sale value of the property on which to base the loan. Quick-sale value is the sum one can reasonably expect to receive for a property in the event that it is sold in four to five months' time.
  • Review of the property by Avatar's CEO or president. A senior staff member will fly out to the property and walk the premises. The borrower does not need to be present by access is, of course, required.
  • Review of P&Ls from the entity that will support the monthly interest-only loan payments. Avatar will look for signs that the loan makes sense for the borrower as well as the lender. The borrower should be able to show that there is sufficient income to pay all the monthly bills including the Avatar loan and still have a few dollars left over to put into a pocket. In other words, if the borrower runs into a 'bump in the road', there will be sufficient cash on hand to get over that bump. Avatar makes loans that make sense for the borrower as well as the lender.
  • Legal review - by legal counsel for both the borrower and lender
  • Gathering of documents such as tax returns, title, survey, insurance information, etc.
Posted in Avatar's Loan Criteria