Summary:

  Buyers, sellers, borrowers, real estate agents, mortgage brokers, and lenders participate in procuring and funding loan transactions.

     Willing buyers (borrowers) and willing sellers are the principals in a loan transaction and, if applicable, the lender (s) making the purchase money loan. They are the catalyst that precipitates the event of a loan closing.

     The agents are the fiduciaries who work for or on behalf of the buyer and seller or the borrower and lender. Agents work for the expectation of compensation. Agents are not principal parties.

     If a loan borrower signs the letter of interest and the loan process begins, the participants and sources of information include:

     A letter of interest from a lender is usually a memorandum of understanding and not a contract. The principal parties, the lender and the borrower, agree to the terms and conditions of the proposed loan, subject to the processing and underwriting of the credit file.

Article:

     The participants in a completed transaction:

o  Loan processor,

o  Loan underwriter,

o  Loan closer,

o  Escrow officer,

o  Title officer (escrow and title are usually combined),

o  Appraiser, third-party independent,

An environmental engineer for commercial properties,

o   Insurance agent or company for property insurance, for the lender to be named on the insurance policy as a lender loss payee.

An association management company will determine if the association dues are current.

o  A tax assessor database determines if the property taxes are current. Example:https://tax.ocgov.com/tcweb/search_page.asp

o  Credit reporting agency

o  Perform a background search of all public records, such as Lexis/Nexis.www.lexisnexis.com

o  Flood zone maps, https://www.fema.gov/flood-maps

o  Fire map,https://www.latimes.com/wildfires-map/

     The loan processor, a pivotal figure in coordinating the various participants during the processing phase, is responsible for gathering and organizing all the necessary information and documents from the borrower, the lender, and other participants, including third-party vendors. This coordination ensures a transparent, reassuring, and professional process, instilling confidence in the transaction.

     The loan lending process has many moving parts, requiring professional practitioners, standard and best practices, and sometimes unintentional substandard practices. Unintended consequences frequently occur, for example, when the loan processor, title officer, underwriter, or the kids are sick, and the person does not come to work.

     Some transactions are more complex and require higher-level and third-party subcontract service providers.

     Third-party vendors are separate and distinct entities for the borrower and the lender involved in the lending process to facilitate the closing. They are hired as independent contractors.

Initial inquiry:

     As the procuring broker, I emphasize your crucial role in initiating the potential loan transaction. Brokers (agents) are the linchpin in fostering teamwork with the real estate agent or other referral sources. Your primary responsibility is to facilitate the process and ensure all material facts are collected and all necessary steps are taken to secure the loan. This includes engaging in a crucial initial inquiry with the prospective borrower. Your expertise and cooperation are highly valued and essential in this process, making you an integral part of the loan transaction.

     The initial inquiry is crucial, setting the tone for the loan transaction. The procuring broker's active participation in and initiation of the potential loan transaction is key to its success.

     The loan broker (agent) engages in a crucial initial inquiry with the prospective borrower, discussing:

o  Type of property,

o  Requested loan amount,

o  First or second lien position,

o  Value estimate,

o  Protective equity,

o  Loan purpose, use of net proceeds,

o  Source of proceeds to make monthly payments,

o  Exit strategy.

     Your proactive role as a broker is crucial and empowering. It puts you in control and sets the tone for your responsibility in the loan process. Your proactive approach ensures that you are always one step ahead, making you a key player in the success of the loan transaction.

     Is there sufficient protective equity above the lien to satisfy the lender's requirements? Protective equity, which refers to the portion of the property's value that exceeds the loan amount, is a crucial factor in the approval process. For example, a 65% loan and 35% protective equity. Understanding this concept is not just important; it's vital because it determines the borrower's financial stability and ability to cover the loan amount.

     The opinion of value procedure is a critical but non-negotiable step in the loan transaction. The agent's responsibility is to ensure the value is determined accurately, diligently, and carefully. Whether it's from online inquiries like RedFin and Zillow or from comparables available to substantiate the value, diligence in this process is crucial and a testament to the success of the loan transaction.

     All value determinations at the beginning of the process are subject to obtaining a third-party independent appraisal during the processing period. The borrower usually pays for the appraiser.

     Does the loan funding improve the borrower's financial circumstances or provide an interim period to fix the problems (borrower and property) and regain economic stability?

     With the assistance of the real estate agent and the borrower, the procuring broker should actively calculate improved cash flow as part of a submission. This calculation is a formality and a critical step in the loan application process. It helps the lender assess the borrower's improved financial condition after the loan closing. Your role in this process is crucial, making you an active participant in the loan transaction.

     Appraisal: Early in the conversation, it's crucial to ensure the borrower understands they must pay for an appraisal upfront. This understanding empowers them and sets the stage for a smooth loan process, making them feel in control and responsible for their part in the transaction.

     If the transaction is a commercial property, the borrower must also pay for a Phase 1 environmental site assessment.

     If a borrower does not understand that they must pay for an appraisal and possibly a Phase 1 environmental site assessment, everything can be done for nothing. The borrower may be expecting a loan with no out-of-pocket expenses. Ensuring the borrower understands these requirements early in the process is crucial. This will help manage their expectations and ensure they are prepared for the costs involved in the loan application.

     A few lenders will not require an appraisal, do their internal valuation, and accept a limited phase one environmental site assessment.

     In Outlook or other database programs, set up a lead file using the address and a (-) with the agent's name for reference. This file serves as a centralized location (depository) for all relevant information, making it easier to track the progress of the loan application.

     Request the borrower to send all the required exhibits for the loan transaction digitally. This will allow you to place them in the designated digital file efficiently, eliminating the need for cumbersome paper files and ensuring a streamlined process.

     Go to Outlook, look up the property, and set up an email to yourself. Include 2 or 3 references, such as Zillow, Redfin, Realtor, etc., and send the email to yourself to place in your lead file. This will give you an idea of the property's condition, an estimate of its value, and a physical description.

     Obtaining a comprehensive property profile from your chosen title company is crucial. This detailed information will be valuable to your loan file, providing a thorough understanding of the property and its potential implications for the loan transaction. When was the property purchased, how much, history of recordings, and copies of the recorded documents relating to the property are available.

     If the borrower is an entity, it's important to look them up on Google and the Secretary of State's business search. This thorough research shows that their entity is valued and considered in the loan process, making you feel diligent and rigorous in your approach.

     If the borrower is an individual, look them up on Google and LinkedIn.

Could you place the data in the lead file?

     If the property is in another state, look up Judicial vs non-judicial foreclosure. Many lenders only make loans in non-judicial states. A few exceptions exist, like Florida and Texas, if the borrower is an entity. Some states provide for both methods.

     The bare minimum documentation for a loan transaction is a completed application, the most recent payment statement, and three months' bank statements. Ensuring all these documents are in order and up to date is crucial.

     The loan is a second trust deed. Please let me know whether placing a second lien on the property is allowed. The first lien may prohibit placing a junior lien on the property, particularly for commercial properties.

     For single one-unit to four units, you can place a second lien as a matter of law.

     An exception may be if the first trust deed is in a prior owner's name and not the current owner's. In that case, you may want to have it passed by your attorney.

     You must review the documents on units of five or greater and all commercial, industrial, and land. The prohibition for placing a junior lien on the property will be in the deed of trust or the loan agreement. The deed of trust is a recorded instrument, but the loan agreement is not. Sometimes, the prohibition only appears on the loan agreement, so a copy is not readily available as a recorded instrument. Could you ask the borrower for it?

     If the borrower is an individual and has a business, could you obtain three months' bank statements for both the borrower and the company?

     The key to having a business and personal account is to figure out the trail of cash flow. Sometimes, a written explanation from the borrower is necessary.

     A geo-tracker database should scan all commercial properties to determine whether they or the properties around them may be contaminated. Then, download the summary and place it in your digital loan file.

https://geotracker.waterboards.ca.gov/map/

Setting up a professional summary to be sent to a prospective lender:

     Your role as the procuring broker is to answer all questions and concerns about the proposed transaction and present them in a written format called an executive loan summary. This document is a crucial communication tool in the loan process.

     Name of the procuring broker and the desired fee.

     The description of the property, condition, income, and value

     The exhibit flow should include pictures, a location map, and a property description.

     State the positive attributes of the loan transaction.

     Secondly, could you describe any weaknesses?

     If there are more than 5 or 6 exhibits, then send two or three emails with the exhibits. In most cases, there is insufficient computer memory to transfer large amounts of data unless you use a program like LockBox.

     Could you email the lender your executive summary of all your exhibits and follow up two days or so later?

     You can expect questions and obtain information for the lender to make an informed decision.