Personal guarantee on a loan that's supposed to live for six hours

Basic question so I can follow. If the loan is repaid the same afternoon, what is left for a personal guarantee to guarantee? Repayment already happened.

@plumb the guarantee isn't really about repayment, it's about clawback. If a title problem surfaces later and the funder gets pulled into it, they want a named human to chase instead of a shell entity that already dissolved.

@fathom I've marked up three of these and got movement on two. The default rate came down once and the survival period came down from a year to six months once. Nobody has ever touched the indemnity for me. The reason, I suspect, is that the indemnity is the clause their own capital source requires, so the person you're negotiating with can't move it.

0.5 percent a day over a weekend is the part that would stop me. If a Friday close slipping to Monday costs 3,210 on top of a fee that's already earned, then just don't fund on Fridays. Cheapest edit on the page and it costs you nothing.

Asking the thing I'd be embarrassed to ask out loud: why does the funder care about title at all if they're repaid in hours? They're in and out before anyone could discover a defect.

@compass because they're in the chain. Their money bought the property, and depending on how they papered it there may be a recorded mortgage and release in their name sitting in the public record forever. A title claim two years later can name everybody who touched it.

@fathom on negotiability: at 214,000 you're a normal sized deal to these shops, not a large one, so you don't have much leverage on paper. What you do have is repeat volume, and that's the thing they actually respond to. I got a fee reduction and a softer default rate in the second half of a year after eight closes with the same funder, and none of it moved on deal one.

How much do you actually expect the twelve month survival to cost you in practice? I ask because I'd be tempted to trade it away and spend the negotiation on the default rate, which has a real number attached to a real risk you can see on a calendar.

@anchor that trade only works if the guarantee is genuinely remote, and whether it is depends on the title work and on state law about who can be named in a defect claim. That's an attorney question in the state where the property sits, not something to eyeball off a term sheet.

4,200 to borrow 214,000 for an afternoon still stops me every time I read one of these threads. I understand why the fee exists. I just can't get my head around how a business runs on it.

@marlow it runs on frequency. One deal a month and it's a rounding error, twenty a month and it's a business.

@fathom the capped indemnity is the markup I'd push hardest. Uncapped exposure on a pre-existing defect you had no way to inspect is a genuinely different animal from everything else on that page. If they won't cap it at the advance, ask them to at least carve out defects that the owner's policy covers, so the policy answers first and you answer for whatever it excludes. That's a smaller ask and closers understand it.

Pricing this from the other chair. If I were writing that paper, the indemnity and the guarantee are exactly what let me quote a flat fee instead of points plus interest. Take them out and I'd have to charge for the tail risk somewhere, and it would show up in the fee. So expect a trade rather than a concession.

The default rate I'd move on without much argument, because a funder who is honest about the design knows the repayment source was committed before the wire went out. Charging 1,070 a day for someone else's custodian being slow isn't risk pricing.

One number missing. What's the spread after everything? 249,000 minus 214,000 is 35,000, minus the 4,200, minus two sets of closing costs and whatever transfer tax your state charges on each transfer. If that lands near 25,000 then the weekend scenario at 3,210 is 13 percent of the profit and the negotiation is worth a day of your time. If it lands near 12,000, the whole file is too thin to carry an uncapped indemnity and I'd be arguing about the deal instead of the paper.