A $4,200 plumber's lien nearly held my month 8 payoff hostage

Your 14.5% is eight month math and the points are doing a lot of that work. Run the same loan out to 18 months with the extension: 310k at 11.25% for a year and a half is about $52,300, plus $6,200 of origination, plus a $3,100 extension point, call it $61,600 on $310k over 18 months, so about 13.2% annualized. Still a fine number. The scenario I would want on paper is the one where he stops paying in month 10 and you are the party advancing taxes and insurance for a year while your attorney bills you. What does the yield look like there, and did you underwrite it before you funded?

The result here rests on one assumption, which is that a takeout loan existed at the moment your borrower needed it. Every number in your post is downstream of that. A bridge loan is priced off collateral value, and it gets repaid out of somebody else's underwriting, usually a DSCR or agency product with its own debt coverage floor and its own rate. When those floors move, borrowers who penciled at a 1.15 coverage ratio stop qualifying and your eight month loan becomes an extension conversation.

So the discipline is to underwrite the exit at terms worse than today's. If the takeout requires 1.20 coverage at a rate 150 basis points above where the borrower was quoted, does the property still support the payoff at your loan balance? If it does not, you are relying on a sale, and a sale means marketing time, concessions, and closing costs against your 68% starting point. Confirm the takeout lender's current seasoning and coverage requirements in writing with that lender rather than through the borrower.

On the lien: your point about relation-back is the right one, and it varies by state. In some states a mechanics lien takes priority from the date labor or materials first went in, which can put it ahead of advances you made later. Recording practice and foreclosure timelines also differ by state, and the difference between a nonjudicial process and a judicial one can be six months of carry. Have a real estate attorney in the state where the collateral sits confirm both the lien priority rule and the timeline before you fund your next one.

The LTV cap is the piece protecting you, not the interest rate.

The extension clause is the part I would want to read. Was the 6 month extension at his election or yours? If it is his option on payment of a point, you have effectively written an 18 month loan at 12 month pricing and you cannot force the exit at month 12. Also curious what your default rate was, whether it steps from 11.25 to something like 18 or just adds a fee, and whether there is a late charge that actually gets collected or one you would have to sue for. And did the note include a prepayment floor? He paid in month 8, which cost you four months of interest you had priced for.

You ordered your own appraisal, which is the single line in your post I would repeat. The question I would add is what else he had out. Fifth building, so there are four other loans somewhere, and I would want a schedule of them with balances, maturity dates, and current payment status, plus a title search on the other collateral to see if any of them are already in default or have judgments attached. A borrower who is current with you and drowning on his third project is a borrower who will be late with you in ninety days. Did the appraisal include rent comps or just sales?

Following canton's point on the exit. When I size a bridge I run the takeout at a coverage ratio a notch tighter than whatever the borrower's broker quoted, and I use in-place rents rather than his projected ones. On a 4 unit with under market leases, the whole payoff depends on him actually getting the new rents signed, and lease seasoning requirements on those programs move. If his rent bump landed at half of what he modeled, does $310k still refinance out? That is the number that tells me whether the 68% was conservative or whether you got a cooperative market.

How much actual work was this month to month? I want income without a second job and I cannot tell from your post whether this was eight months of nothing or eight months of phone calls.

Basic question and I would rather ask it than guess. When you say 2 points, is that $6,200 the borrower pays you at closing on top of interest, and does it come out of the $310k or does he bring it? And how did this borrower find you in the first place, or did you find him?

@ember points are a percentage of the loan amount charged up front, so 2 points on $310k is $6,200, and it is usually netted out of the funding wire so the borrower receives $303,800 and owes $310k. That is why short payoffs juice the annualized number the way tender described.

@tender what did the servicer cost and did they have a minimum? Every one I have called wants either a setup fee plus something like $30 to $40 a month, or a minimum portfolio size before they will take you at all. On a single loan I could not make the math obviously worth it, though your point about never touching borrower funds is the answer to why you do it anyway.

Did you pull a fresh title search right before payoff, or did you rely on title's work at closing? The lien surfaced in month six, which means something between funding and payoff was looking. I have read that some lenders order an interim search at six months on anything with construction activity and I want to know if that is normal practice or overkill on a cosmetic scope.

The payoff demand is where I would look at your file next. Did you issue it with a per diem and an expiration date, and did it name every item you expected reimbursed, including any inspection fees and your attorney's review? I have seen escrow pay off the note balance and simply ignore charges that were in the loan documents but absent from the demand letter, and once the release records you are chasing a borrower for four hundred dollars.

On the lien question, @pike, an interim search is not overkill anywhere the lien can attach with priority dating from first work. Whether it can depends on the state, so ask your title company what the rule is in that state and put their answer in writing.

Slower question. Who physically has the note, you or the servicer, and what happens if the paper goes missing? I have been reading about notes for a couple of months and I still cannot tell whether the recorded deed of trust or the note itself is the thing that actually matters.