Loan Opportunity

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My CPA (have known for over 20 yrs) sent me a letter.  I want o present to you a great investment opportunity.  I have a client who runs a family business (Skill Nursing Facility) and is short on working capital.  My client would like to borrow $250,000.00 for one year, interest only payable monthly at 14% or $2,916.67 per month.  The collateral will be a second deed of trust on 2 commercial real properties located in our small town.  The family has owned these 2 properties for almost 60 years.  The one property is currently rented at $11,000 per month triple net lease and the other property is rented by the family to the 3 children who own the skilled nursing facility at $15,600 per month.

Conventional wisdom has always told us that second deeds of trust are not a good investment, but there are always exceptions to this general rule and this is definitely one of them.  The 2 properties were refinanced with F&M Bank about 3 years ago and F&M Bank has a first deed of trust on both properties for $1,800,000.00.  F&M Bank had an appraisal done and the 2 properties appraised for $6,000,000.00 so there is plenty of equity.  Furthermore the parents of the 3 owners co-signed the note at  F&M Bank and the parents are worth over 10 million dollars.  So it is obvious that the properties will never be foreclosed upon.  The family also owns approx. $1,500,000.00 in F&M Bank common stock almost enough to pay off the first mortgage.

I have been retained by my clients to obtain private money loan for  them and they will compensate me for doing all the paperwork.  The skill nursing facility has a definite cash flow need.  You might ask why wouldn't the parents just pay off the debt.  My CPA told me the parents say their children would probably not pay the money back to them.

Should I take on this "great investment opportunity"?
 

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Not clear to me, then, how the kids could use these buildings as collateral for the loan, without the authorization of t... (more)

cestmoi123 (Jun. 13, 2017 @ 1:35p) |

The parents cosigned it...

OR

Their is no 'collateral' just the word of the CPA

forbin4040 (Jun. 13, 2017 @ 2:20p) |

Time to switch CPA's

ilikebtmoney (Jun. 13, 2017 @ 6:42p) |

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Kids running nursing home in to ground so much that parents have cut them off. What could go wrong!!

Be prepared to come up with the $1.8M to pay off F&M Bank when they foreclose. Being in 2nd position means you will only get any proceeds from the foreclosure sale after F&M have covered all their costs. Small town and a specific use for these buildings means they will sell for a major discount.

If you are okay with these risks, the interest rate seems okay. I think the most you can get not considered usury is 18% unless you get creative with fees.

The question I would always ask in this type of scenario is why they don't do more conventional financing.

I think your CPA might be stealing from you as well.

ZenNUTS said:   The question I would always ask in this type of scenario is why they don't do more conventional financing.
  This is the obvious question. With those numbers, they should be able to get a second loan for well below 14% interest.

forbin4040 said:   I think your CPA might be stealing from you as well.
  
I'm seeing ethics conflict written all over this.
Advising (unsolicited advice, AKA selling pressure) a client to whom he has a fiduciary responsibility, to enter into a potentially adversarial relationship with another client whom he represents? And the proposition the accountant is putting forth apparently involves loaning money to those who can't borrow from banks at 14%?
Yikes.

The CPA says that the parent's don't loan money to the children because they 'wont pay it back'.

Then
1) The business is owned by the Children
2) The collateral belongs to the parents, not the children. So if the business goes under, there is *no collateral*
3) The landlords (Parents) don't think the borrowers (children) will pay them back. There's a bad sign.
4) You are basically making a personal loan, and not a loan that has assets tied to it.

The only way you make money in this is if the children make money at the Nursing facility, and so far you have not shown any proof that the facility runs at a profit.

Run away! And change your CPA while you are at it.

bbr said:   Small town and a specific use for these buildings means they will sell for a major discount.
 

  I was just going to say - either OP is grossly misrepresenting her "small town", or these properties will sit vacant for a long time after being foreclosed.  There's a reason the bank will only give them a 30% LTV mortgage - that's the most they project getting from a foreclosure auction.  And there's a reason 'the family" will let the property be pledged against this loan, but wont kick in the cash themselves - they know in the event of foreclosure, that second note will be inconsequential anyways.  Plus they know that, in the event of foreclosure, they can buy the property at the foreclosure auction for $1.8 million to satisfy the bank, and clear your lien in the process. 

If the business has cashflow issues now, how are they going to come up with an extra $250k to pay you back in just a year from now?

At the absolute minimum, I'd insist on personal guarantees from anyone remotely connected to this family (the kids, parents, spouses, siblings, and probably the CPA too).  But there's definitely a reason they consider a 14% loan to be the best option.

I would worry about anyone offering 14% interest now. And your CPA soliciting money for them? Second position? Too many red flags.

Edited:... nevermind, brain fart.

I would not trust a CPA who can't correctly spell the name of a facility: it is a SkillED Nursing Facility.

No. Or link to this topic when the shtf.

Is this skilled nursing facility in Nigeria by any chance?

Ponzi.

Listen.. Forget about this deal. I have a solid one for you. There's this bridge in Brooklyn, New York.. It's for sale. I can cut you in for a piece for half that amount!!! Plus, people use it every single day!!! Think about it.

forbin4040 said:   The CPA says that the parent's don't loan money to the children because they 'wont pay it back'.

Then
1) The business is owned by the Children
2) The collateral belongs to the parents, not the children. So if the business goes under, there is *no collateral*
3) The landlords (Parents) don't think the borrowers (children) will not pay them back. There's a bad sign.
4) You are basically making a personal loan, and not a loan that has assets tied to it.

The only way you make money in this is if the children make money at the Nursing facility, and so far you have not shown any proof that the facility runs at a profit.

Run away! And change your CPA while you are at it.

 Thanks!   I appreciate most of the comments that have been posted. 

I really thought this might be a good deal when I first received the letter.  I called my CPA for more details.  He told me that I didn't have to go for the full $250K.   A less amount would be accepted. 

I now will let this deal go!  

kb75 said:   I would not trust a CPA who can't correctly spell the name of a facility: it is a SkillED Nursing Facility.
  Yup, that's the red flag here.

Is your CPA related to Bernie Madoff?

pattyB said:   My CPA (have known for over 20 yrs) sent me a letter.  I want o present to you a great investment opportunity.  I have a client who runs a family business (Skill Nursing Facility) and is short on working capital.  My client would like to borrow $250,000.00 for one year, interest only payable monthly at 14% or $2,916.67 per month.  The collateral will be a second deed of trust on 2 commercial real properties located in our small town.  The family has owned these 2 properties for almost 60 years.  The one property is currently rented at $11,000 per month triple net lease and the other property is rented by the family to the 3 children who own the skilled nursing facility at $15,600 per month.

Conventional wisdom has always told us that second deeds of trust are not a good investment, but there are always exceptions to this general rule and this is definitely one of them.  The 2 properties were refinanced with F&M Bank about 3 years ago and F&M Bank has a first deed of trust on both properties for $1,800,000.00.  F&M Bank had an appraisal done and the 2 properties appraised for $6,000,000.00 so there is plenty of equity.  Furthermore the parents of the 3 owners co-signed the note at  F&M Bank and the parents are worth over 10 million dollars.  So it is obvious that the properties will never be foreclosed upon.  The family also owns approx. $1,500,000.00 in F&M Bank common stock almost enough to pay off the first mortgage.

I have been retained by my clients to obtain private money loan for  them and they will compensate me for doing all the paperwork.  The skill nursing facility has a definite cash flow need.  You might ask why wouldn't the parents just pay off the debt.  My CPA told me the parents say their children would probably not pay the money back to them.

Should I take on this "great investment opportunity"?

  
If it's so great, why don't your cpa take it instead of offering it to you?

pattyB said:   
forbin4040 said:   The CPA says that the parent's don't loan money to the children because they 'wont pay it back'.

Then
1) The business is owned by the Children
2) The collateral belongs to the parents, not the children. So if the business goes under, there is *no collateral*
3) The landlords (Parents) don't think the borrowers (children) will not pay them back. There's a bad sign.
4) You are basically making a personal loan, and not a loan that has assets tied to it.

The only way you make money in this is if the children make money at the Nursing facility, and so far you have not shown any proof that the facility runs at a profit.

Run away! And change your CPA while you are at it.

 Thanks!   I appreciate most of the comments that have been posted. 

I really thought this might be a good deal when I first received the letter.  I called my CPA for more details.  He told me that I didn't have to go for the full $250K.   A less amount would be accepted. 

I now will let this deal go!  

  How will everyone who kicks in part of the $250k all get a second lien position?

You should propose the same loan terms plus 10% equity in the business.  I'm pretty sure if they even consider that, it'd be a clear confirmation you want to stay as far away from it as possible.  But it'd also give you an excuse to look at the biz books, just for sh!ts and giggles.

forbin4040 said:   Is your CPA related to Bernie Madoff?
  No, they're just cellies.

14% interest? and your cpa (the one who knows all your numbers) is sending you this letter unsolicited tells me that he is an insider for the borrowers and he is lining up multiple folks like you.....this sounds definitely a "scheme"

dealgain said:   14% interest? and your cpa (the one who knows all your numbers) is sending you this letter unsolicited tells me that he is an insider for the borrowers and he is lining up multiple folks like you.....this sounds definitely a "scheme"
 I wouldn't necessarily count the CPA as being part of it.  Being a small town, this $10+ million net worth family probably  represents a significant percentage of his business, and he's just trying to keep his valuable client happy with his services.

That said, this request does read like a Nigerian prince scam letter.  If this is a small town, don't you know exactly who he's talking about anyways?  How many multi-millionaire families could there be, and how many skilled nursing homes run by local rich kids are there?  It seems like there should be way more familiarity between parties, where a simple phone call "Hey, the Smith kids are having a cash crunch down at the nursing home, do you want to hear an offer to lend them money until insurance payments catch back up?"

dealgain said:   14% interest? and your cpa (the one who knows all your numbers) is sending you this letter unsolicited tells me that he is an insider for the borrowers and he is lining up multiple folks like you.....this sounds definitely a "scheme"
  
To me, it sounds like a guy who's licensed to audit financial statements getting into investment work (or worse yet, banking/lending work) he isn't licensed for and asking for real trouble.
"I have been retained by my clients to obtain private money loan for them and they will compensate me for doing all the paperwork."

EDIT: I forgot the really big and obvious flaw in his plan: Unauthorized Practice of Law. He's taking pay for drafting a legal contract, one that has a serious chance of blowing up in the faces of those who paid him for unlicensed legal counsel.

Glitch99 said:   
dealgain said:   14% interest? and your cpa (the one who knows all your numbers) is sending you this letter unsolicited tells me that he is an insider for the borrowers and he is lining up multiple folks like you.....this sounds definitely a "scheme"
 I wouldn't necessarily count the CPA as being part of it.  Being a small town, this $10+ million net worth family probably  represents a significant percentage of his business, and he's just trying to keep his valuable client happy with his services.

That said, this request does read like a Nigerian prince scam letter.  If this is a small town, don't you know exactly who he's talking about anyways?  How many multi-millionaire families could there be, and how many skilled nursing homes run by local rich kids are there?  It seems like there should be way more familiarity between parties, where a simple phone call "Hey, the Smith kids are having a cash crunch down at the nursing home, do you want to hear an offer to lend them money until insurance payments catch back up?"

  Glitch, I think you are right! 

Yes, a small farming town, 60K+ residents.  (we happen to farm also)  Like I said, I have known my CPA for 20+ years & I feel he wants to help his clients out & make a small profit for himself with this deal.  When I talked to him, he laughed and said, "there is no way the parents will not allow the properties to be foreclosed upon".

That's why I thought at first it might be worth a gain for me.   But after reading all your responses & also talking to my son (who deals with real estate) I have decided to let this one go. 

60,000 people is not a small farming town.  That's a small City, that would be in the top 10 population areas in most states.

taxmantoo said:   
dealgain said:   14% interest? and your cpa (the one who knows all your numbers) is sending you this letter unsolicited tells me that he is an insider for the borrowers and he is lining up multiple folks like you.....this sounds definitely a "scheme"
  
To me, it sounds like a guy who's licensed to audit financial statements getting into investment work (or worse yet, banking/lending work) he isn't licensed for and asking for real trouble.
"I have been retained by my clients to obtain private money loan for them and they will compensate me for doing all the paperwork."

EDIT: I forgot the really big and obvious flaw in his plan: Unauthorized Practice of Law. He's taking pay for drafting a legal contract, one that has a serious chance of blowing up in the faces of those who paid him for unlicensed legal counsel.


  I would go in to this for these very reasons, especially for a smaller amount, like $10k  or whatever you feel like tying up and then if it blows up I'd go after the CPA with a vengeance because he's actually the ultimate backstop. 

pattyB said:   When I talked to him, he laughed and said, "there is no way the parents will not allow the properties to be foreclosed upon". 
 


With the double-negative?

Glitch99 said:   60,000 people is not a small farming town.  That's a small City, that would be in the top 10 population areas in most states.
  Ok Glitch, small City.  Lot's of farming around the City.   In CA, I call the City I live near, "a small farming town".

LOOPHOLE said:   
  I would go in to this for these very reasons, especially for a smaller amount, like $10k  or whatever you feel like tying up and then if it blows up I'd go after the CPA with a vengeance because he's actually the ultimate backstop. 

  

IANAL, but I think his biggest liability is to the borrowers who paid him to draft the contract.
"You failed to shield us from personal liability for our business' debt, and now we're being sued for 1/4 million".
I'm sure his Errors and Omissions insurance carrier would love that one.

But, the more I think about it, I think the OP would have nearly as good of a claim under the theory of "You gave me bad investment counseling and failed to adequately disclose the risks of the investment, in fact you claimed there was no risk"

The last two small town CPAs I worked for could absorb a 1/4mil loss if their insurance didn't cover them, but it would put a serious dent in their standard of living for a few years.

pattyB said:   
Glitch99 said:   60,000 people is not a small farming town.  That's a small City, that would be in the top 10 population areas in most states.
  Ok Glitch, small City.  Lot's of farming around the City.   In CA, I call the City I live near, "a small farming town".

  Just messing with you.  I grew up in a small farming town then moved to "the big city" -and that city didn't even have 60k people.  So yes, when you say small farming town, I'm thinking of a town that **may** have a traffic light somewhere along the 6-block span of main street...
​​​

It appears you CPA has crossed the line and might be approaching *Madoff*. He didn't start out as a Ponzi you know, he slowly got there.

What I will expect in the future.
1) The children get the cash influx (Possibly up to 1 million dollars)
2) They burn the money on whatever lifestyle they are used to (Since they already burned through the 'family' money)
3) They ask the CPA again for more liquidity.
4) The CPA sends out another 'please loan them money'
5) People start getting suspicious and pull their funds from him
6) The CPA starts taking a percentage of the 'loaned money'
7) CPA starts using part of his customers funds to help out the 'family'
8) CPA disappears.

This is ripe to become a giant ponzi and the CPA is going to take the fall. Along with your funds.
Or actually why does this feel like an episode of the Sopranos?

Glitch99 said:   
bbr said:   Small town and a specific use for these buildings means they will sell for a major discount.
  I was just going to say - either OP is grossly misrepresenting her "small town", or these properties will sit vacant for a long time after being foreclosed.  There's a reason the bank will only give them a 30% LTV mortgage - that's the most they project getting from a foreclosure auction.  And there's a reason 'the family" will let the property be pledged against this loan, but wont kick in the cash themselves - they know in the event of foreclosure, that second note will be inconsequential anyways.  Plus they know that, in the event of foreclosure, they can buy the property at the foreclosure auction for $1.8 million to satisfy the bank, and clear your lien in the process. 

If the business has cashflow issues now, how are they going to come up with an extra $250k to pay you back in just a year from now?

At the absolute minimum, I'd insist on personal guarantees from anyone remotely connected to this family (the kids, parents, spouses, siblings, and probably the CPA too).  But there's definitely a reason they consider a 14% loan to be the best option.

  I just called my CPA and told him I would decline his "loan Opportunity".    He said several other folks had also turned it down. 

I mentioned the cashflow issues & also the fact of  "getting back my $250K principal".  Yes, he wasn't surprised about those issues of mine. 

 

Do you normally ask your CPA for investment advice? Does he regularly provide unsolicited advice and you've been okay with that? If the answer to both of those questions is, "No," then I would ask him why he thinks it is appropriate for him to try and sell this "opportunity" to you. Depending on his answer, I would probably switch CPAs. If he's willing to reach out to you with this advice because he knows you have $250,000 in the bank, I wouldn't be surprised if he's willing to tell other salespeople in town about how much money you have laying around.

pattyB said:   
Glitch99 said:   
bbr said:   Small town and a specific use for these buildings means they will sell for a major discount.
  I was just going to say - either OP is grossly misrepresenting her "small town", or these properties will sit vacant for a long time after being foreclosed.  There's a reason the bank will only give them a 30% LTV mortgage - that's the most they project getting from a foreclosure auction.  And there's a reason 'the family" will let the property be pledged against this loan, but wont kick in the cash themselves - they know in the event of foreclosure, that second note will be inconsequential anyways.  Plus they know that, in the event of foreclosure, they can buy the property at the foreclosure auction for $1.8 million to satisfy the bank, and clear your lien in the process. 

If the business has cashflow issues now, how are they going to come up with an extra $250k to pay you back in just a year from now?

At the absolute minimum, I'd insist on personal guarantees from anyone remotely connected to this family (the kids, parents, spouses, siblings, and probably the CPA too).  But there's definitely a reason they consider a 14% loan to be the best option.

  I just called my CPA and told him I would decline his "loan Opportunity".    He said several other folks had also turned it down. 

I mentioned the cashflow issues & also the fact of  "getting back my $250K principal".  Yes, he wasn't surprised about those issues of mine. 

 

  There you go! Like I suspected, your CPA was indeed sending these letters to multiple folks. The very fact that he sent out unsolicited letter must be a deal breaker that not everything is straight with this deal

If those buildings are really worth $6 million, and have only $1.8 million borrowed against them, it would be trivial to get a $250k line of credit secured by the buildings, and at a rate 1/3 of the 14%.

cestmoi123 said:   If those buildings are really worth $6 million, and have only $1.8 million borrowed against them, it would be trivial to get a $250k line of credit secured by the buildings, and at a rate 1/3 of the 14%.
  You did forget that the buildings are owned by the family, and the parents (aka Family) doesn't want to loan them anymore money.

When someone says 'owned by family' that usually means their parents own it.

forbin4040 said:   
cestmoi123 said:   If those buildings are really worth $6 million, and have only $1.8 million borrowed against them, it would be trivial to get a $250k line of credit secured by the buildings, and at a rate 1/3 of the 14%.
  You did forget that the buildings are owned by the family, and the parents (aka Family) doesn't want to loan them anymore money.

When someone says 'owned by family' that usually means their parents own it.

  Not clear to me, then, how the kids could use these buildings as collateral for the loan, without the authorization of the building owners...

The parents cosigned it...

OR

Their is no 'collateral' just the word of the CPA

Skipping 1 Messages...
Time to switch CPA's



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