The default clause in this fund's loan docs gives them 90 days before they can even start

Extension discretion itself is normal. Forbearance is often the right commercial answer, because a flip borrower who's 60 days late on a rehab that's 80 percent done will usually pay in full given six more weeks, and foreclosure timelines run months to over a year depending on the state, judicial or non-judicial. A manager with no ability to extend has to foreclose on curable defaults, which is worse for you.

What's missing from that document set is the reporting that makes the discretion checkable. Ask for three things in writing. A loan tape at the individual loan level showing original maturity, current maturity, times extended, and last payment received date. A non-accrual policy, meaning the stated number of days past due at which the manager stops recognizing interest income on a loan. And the source of distributions, broken out as interest collected, fees, reserve draw, and new capital. If the manager won't produce a loan tape with extension counts, that's the flag, not the clause.

The number I'd chase harder than the cure period is what 70 LTV means in their file. As-is value or after-repair value? A 70 percent ARV loan on a house that needs 60k of work can be 95 percent of today's as-is value on day one. Ask which appraisal or BPO type they use, who orders it, and whether the appraiser is on their payroll.

Also check the fund's fee waterfall for whether the manager collects extension fees on those extensions. If they earn a point every time they push maturity, the discretion has a price attached and it isn't paid to you. Anything about whether this offering is properly structured as a security is a question for a securities attorney.

The non-accrual policy is the one I've started asking for first, because most sponsors I've talked to don't have a written one at all. They say "we handle it case by case," which means every past due loan is still accruing at 11 percent on the statement I receive. Fathom, also ask what percentage of the portfolio has been extended at least once. If it's over about a quarter I want a much longer conversation about the underlying markets.