Real-life Example:

The borrower’s intentional withholding of crucial information during the proposed loan transaction has significantly complicated the situation for the potential lender, underscoring the necessity for comprehensive due diligence.

The borrower’s actions are akin to suppressing information in a complex business arrangement, creating a merry-go-round of secrecy that complicates the lender’s standard best practices.

The wife was unaware of anything until she received a subpoena for a deposition relating to equipment loan defaults in the operating company.

Then, (shi_hit the fan-'SHIF’) between the husband and the wife,  Irony always has its place and rears its ugly head at unexpected times, adding a dramatic twist to the story and keeping you engaged in the narrative.

The proposed transaction was so intricate that it required the expertise of an experienced funding mortgage broker to unravel its complexities and assess how they might impact a future loan in the servicing department, should it be funded. This complexity underscores the need for professional guidance in such transactions.

Upon reflection, it is evident that this borrower’s actions were not straightforward.  Their deceitful behavior, characterized by sneakiness, deviousness, and dishonesty, significantly increased the lender’s risk exposure.  The borrower’s actions not only complicated the transaction but also heightened the risk for the lender, who was not fully informed about the borrower’s financial situation and potential liabilities.

But the silence was not golden.  He was in hot water for various defaulted loan obligations and was having a comeuppance with his wife.  Suspense awaits us to see how the wife responds.

The lender’s meticulous due diligence uncovered the full extent of the borrower’s financial obligations, a web of deceit, through skeptical and critical inquiry.  This thorough process should ensure that you know the depth of our risk assessment and the measures we take to protect our interests.

But the silence was not golden.  He was in hot water for various defaulted loan obligations and was having a comeuppance with his wife. Suspense awaits us about how the wife responded.

Article:

The procuring mortgage broker states, “

"My client needs a loan to pay various judgments, liens, and tax obligations.  He has a substantial amount of equity in his real estate and is likely worth more than $ 10-20 million.  Would he ever default?  I will obtain an application for your review.”

The prudent lender responded a couple of weeks later.

After the lender’s underwriting department has conducted due diligence, the broker/lender is responsible for facilitating the transaction, ensuring the borrower provides all necessary information, and responding to the borrower’s procuring mortgage broker.  The broker lender’s role is crucial in such transactions, as they are responsible for verifying the information provided by the borrower and ensuring that all potential risks are identified and addressed.

As potential lenders, we have meticulously conducted due diligence on every transaction.  Our comprehensive background search on the borrower and theborrower’ss operating company,, along withd our thoroughreviewk of court record,s, revealed a more complex situation than initially presented   This rigorous process, involving [specific steps of due diligence], should reassure all concerned about our commitment to uncovering all potential transaction risks.

What was initially presented as a few judgments, liens, and tax obligations has unexpectedly transformed into an immensely complex underwriting exercise.  This unexpected turn of events should underscore the importance of being prepared for surprises in the lending process and the need for thorough due diligence.

This transaction had three parties:

The primary principal borrowers who own at least 15 pieces of real estate,

An operating company owned and actively operated by the borrower and managed by a close relative

A newly formed separate company started and operated by a close relative, which is not part of this loan request.

The borrower has a business enterprise with numerous judgments and liens, separate from the borrower’s individual judgments and liabilities.

The borrower has a business enterprise with numerous judgments and liens, separate from the borrower’s individual judgments and liabilities. This borrower owns numerous prime real estate properties, some of which are free and clear.  The equity to borrow against appears to be more than adequate.

The borrower was burdened with a significant financial obligation of approximately $ 2 million in state and federal personal tax arrearages and judgments.  The borrower had a recorded Lis Pendens (notice of pending legal action) on numerous properties, which were used as collateral by equipment lenders as a source of repayment. These substantial financial obligations significantly impacted the loan request, raising serious concerns about the borrower’s economic stability.

There are also multiple defaults on large pieces of leased business equipment that he has personally guaranteed.

No new loans or conveyances are possible unless these obligations are satisfied, as they are all a matter of public record, and lien priority dictates that they take precedence over any newly recorded lien.

The borrower operates as an individual investor and serves as the president of one or more corporations.  He and the entities are separate and distinct from each other.

The operating company, owned separately by the borrower from the individual, also has $ 2 million in civil judgments and liens.  The company has not paid California employment taxes for almost two years.

The company has also defaulted on lease payments for multiple pieces of large equipment, which the borrower personally guaranteed.

Some equipment lease defaults included personal guarantees; therefore, the judgment becomes an individual obligation of approximately $300,000.

The borrower and the borrower’s lawyer argue that business debts cannot be attached to the individual or his unrelated real estate holdings.  Therefore, a title insurer must insure these new real estate loans.

The borrower often fails to pay vendor service providers in his business, which frequently results in litigation.  Multiple civil judgments have been issued against the company.

A borrower-related party has started a new company in the same line of work.  The new company assumed ownership of all active customer accounts.  The operational buildings and the equipment used in the latest industry are the same.  However, even the new company continues to default on equipment payments owed by the old company.  It appears, although not verified, that the borrower is attempting to put his defaulting company, with two million in debt, into insolvency without filing for bankruptcy or paying creditors.

The new company would take over the business accounts and operate a functioning enterprise with a projected profit.  The intent is that all tax obligations, judgments, and liens remain in the old insolvent company.

All arrears in taxes, judgments, and liens of the old operating company would disappear in insolvency.

While one may consider the underhanded maneuvers a brilliant estate planning scheme, the loan request was declined for apparent legal and ethical reasons. The borrower’s actions, including attempts to transfer liabilities to a new company, as well as its history of defaults and litigation, raised serious concerns about the borrower’s financial responsibility and the potential for future defaults.

The broker/lender perceives that there will be future litigation if the new operating company defaults on equipment leases, all of which have personal guarantees that lead back to the borrowers as individuals.

This perception highlights the importance of thorough risk assessment in such transactions, ensuring that we are always prepared and proactive, particularly when potential future litigation is a concern.

In conclusion, this case serves as a stark reminder of the risks and complexities inherent in loan transactions, particularly when borrowers withhold material factsIt highlights thehe cruciaimportanceee of thorough due diligencand the potentially severe consequencesss of unethical or deceptive behavior in financial transactions. A  lender would decline to take on a loan transaction fraught with continuous problems.