Where does a portal investor actually sit in the stack on a 10 percent first position debt offering
Here is a scenario worth working through for anyone looking at debt offerings on a crowdfunding portal. Take a first position mortgage offering. The minimum is $10,000, the rate is 10.0% annual paid monthly, the term is 12 months with two 3-month extension options at the borrower's election, and the loan amount is $1.85M against a stated as-is value of $2.6M. Single family rehab, four houses in one metro, cross collateralized. What the investor has in hand: an offering summary, a borrower track record page saying 31 prior projects with zero losses, and an appraisal dated nine months back. The question that deserves the room's attention. The summary calls it first position, but the platform is the named lender and the investor is buying an interest in an LLC that holds the note. So the investor is not on the deed of trust personally. Does that matter in practice if the borrower stops paying? Who forecloses, who pays for the foreclosure, and does that cost come out of investor principal? The extension options deserve the same scrutiny. If the borrower can extend twice at their own choice, a 12 month loan is an 18 month loan whenever it suits them, and no extension fee appears anywhere in the summary. The rate is fine for someone moving toward lending rather than owning, and offerings like this are often the cleanest looking entry available. The risk is discovering the position is thinner than the word first suggested. Who has read one of these all the way through, and what did the LLC agreement actually say about foreclosure costs and extension terms?
