In the lending world, specifically hard money, numerous terms are used on a daily basis that are outside the vernacular of most. Just like any other profession, once you know the terms you are ready to do business. Fortunately, real estate terms are pretty much common sense and the language can be picked up quickly. This series of posts will introduce some of the most common hard money lending terms, or just provide as a refresh for some of those odd-ball terms from the private lending perspective. See Essential Hard Money Terms Part 1 for more. 

Cash Out Loan:

A loan given to a borrower by a lender where the borrower already owns the property but wants to refinance it to take additional cash out to use for other business purposes.  Banks typically are not willing to fund this type of loan, while hard money lenders are normally open to this type of request.

Hard Money Lending:

Also known as private money lending, this is when private individuals or other specialized companies (as opposed to banks and other financial institutions) lend money to other individuals or small businesses in exchange for a fair rate of return on the funds. Hard money loans are generally asset-based and secured by real estate.

Title insurance:

A  form of indemnity insurance which insures against financial losses incurred as a result of either defects in title to real estate or unenforceable liens. It protects both the owner’s and the lender’s financial interests in the event of a lawsuit against the title, so the owners title insurance policy is an essential for a purchaser of real property and always required as part of the closing the deal. Any reputable hard money lender will always require a “mortgagee” policy of title insurance as part of the loan documentation, before funding an asset-backed loan.

Value: 

A security’s value can be determined in different ways. The most common practices are: 1) the property’s previous transfer price; 2) tax-assessed value; 3) appraised value (assigned by an impartial licensed appraiser); 4) a Market Value Analysis (provided by a realtor); 5) transfer prices for comparable properties; 6) an income analysis; and 7) an evaluation of the cost basis for the property. Note: Hard money lenders will sometimes use “quick sale value” rather than fair market value. There is no hard and fast rule for “quick sale value” but it is often defined as the value if the property is put on the market and must be “liquidated” within 90 days.

Stay tuned for more terms to come!

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.