Communicating with your Lender

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Our all-encompassing mother value is ‘Relationship’, it is at the heart of everything we do here at CPL. Without the relationships we have built and fostered over the years it is hard, if not impossible to imagine that we would still be in business ten years later. As with any relationship though, it is a two-way street and there are good times and there are bad times, but we believe the backbone of any good relationship is open and honest communication. It is for this reason that we made ‘Communication’ our next highest value.

We are very open when discussing all matters with our borrowers. We are always forthcoming and are happy to share our position. We will typically support our opinions with facts and data, and we look to our borrowers to do the same. With this being said, there are circumstances where perhaps viewing the issue through the lens of a financier isn’t appropriate. This is truly where the relationship and communication come into play.

We recently had some clients who had started to work on a small fix n’ flip downtown. This project seemed straightforward enough, new floors, paint, cabinets and some landscaping. They then brought this property to us at CPL and we evaluated the deal. We determined that we could loan on the property and that their scope of work of around $25,000.00 was accurate. We were then able to fund the deal and work began soon after. Unfortunately, upon starting the demolition process it became clear that there was substantially more that needed to be done and that their current scope of work was far from complete. This sort of predicament is one that even our most experienced borrowers can find themselves in. Unforeseen mechanical problems are a dime a dozen in the fix n’ flip business. They are a big reason why rehabilitating properties is seen as a high risk, high reward type of investment.

Knowing this, our borrowers could have done a variety of different things. They could have decided to pour more of their own cash into the deal or they could have borrowed the money from someone else, a family member or another lender or if they were truly desperate, they could have looked to sell their property to another investor. While these are all solutions, they weren’t ideal. First off, they weren’t desperate so selling the property was simply off the table. They had money they could have put into the project, but they were also starting a new family and tying up extra money into the project could have put some financial strain on them for the foreseeable future. They were hopeful to get some more funds and without hesitating they called us as soon as they were notified of the problems. After describing the situation, they now found themselves in, they then laid out a plan. First, they were going to be on top of their contractor to come up with updated bids for their scope of work. Second, they were aware that a few properties had sold nearby since their project had begun and they provided us with up-to-date comparable sales. Third, they were candid in describing their needs, they laid out what they thought would be fair and they asked that we consider it.

The contractor had his hands full trying to sort through all of these new “discoveries” and while he continued to assess the property and overhaul his scope of work our borrowers stayed in constant contact with us, filling us in on all the latest updates. By doing so, we knew exactly how much time we had and what was at stake each step of the way. When we finally received the updated scope of work, we weren’t the least bit surprised as we knew what was coming our way. We then met and signed off on a Modification of Mortgage, granting them the needed additional funds to complete the project.

Our relationship was strong enough with these borrowers that they felt as though they could come to us at the first sign of trouble. They communicated their concerns and their needs clearly and gave us weeks of lead time to assess the situation and to come up with a solution that was as win/win for all parties involved. At the end of the day this type of communication provides us with the clarity we need to be flexible and the confidence to get creative.