Private Lender by AAPL

Chuck

Arthur

Philip Feigenbaum, Huffman Associates

88 Use Automation and AI with Integrity

Pete Amaya III, RTL Tech

Doomed After AB 130?

Dennis Doss, Esq., Doss Law, LLP

Avoid Pitfalls in Prepayment

Penalty Rules for LLC Borrowers

Nichole Moore, Esq., Fortra Law

Lindsey Williams, Ternus Lending 80 Accounting for Securitizations

Chad Murphy, Richie May

Romney Navarrro and Chris Ragland, Ragland Navarro Capital

December 2-4, 2025 | Fairmont Scottsdale Princess | Scottsdale, AZ

1,800+ SFR decision-makers 250+ expert speakers 950+ owners and operators

Where great connections lead to great deals. The SFR industry’s largest West Coast event. Boost your knowledge, your network and your business. Save 20% with discount code REU2333APL

*IMN is offering the first 20 investors who have not attended IMN’s SFR Forums with a complimentary pass to attend. Please reach out to stacey.kelly@imn.org to apply.

LINDA HYDE

President, AAPL

KAT HUNGERFORD

Executive Editor

CONTRIBUTORS

Pete Amaya

Kirill Bensonoff

Arthur Budimir

Daren Blomquist

Nema Daghbandan, Esq.

Dennis Doss, Esq.

Steve Ernest, Esq.

Phil Feigenbaum

Michael Fogliano

Sam Kaddah

Larry Manchester

Rodney Mollen

Nichole Moore, Esq.

Sean Morgan

Chad Murphy

Susan Naftulin

Romney Navarro

Chris Ragland

Chuck Reeves

Lindsey Williams

COVER PHOTOGRAPHY

BlushPix Photography

PRIVATE LENDER

Private Lender is published quarterly by the American Association of Private Lenders (AAPL). AAPL is not responsible for opinions or information presented as fact by authors or advertisers.

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Ownership Isn’t Leadership

My 12-Year Journey Building AAPL

Twelve years ago, I walked into my first American Association of Private Lenders event with a notebook, a head full of ideas, and a simple question: What could this industry become if we all worked together?

Back then, there was no common ground, no shared standards, and certainly no united voice advocating for us. I didn’t own the association, but I saw its potential—not just to be a membership group, but to be the heartbeat of the industry.

I still remember those early days sitting with a handful of other believers, scribbling on flip charts, talking about what this industry needed most. Education. Networking. A code of ethics. A real seat at the table when lawmakers talked about regulations that would shape our future.

With the help of a small but mighty team, we got to work. We built programs from scratch. We called lenders one by one to get them involved. We organized events on shoestring budgets but with big visions.

Then the magic started to happen. Our education programs filled up. Our annual conference became a place where real relationships were formed and deals were made. Our members started sharing success stories, telling us they felt more confident, more connected, and more prepared to grow their businesses.

Today, AAPL isn’t just an association; it’s a community. It’s the place where lenders come to learn, to collaborate, to find their people. It’s where the industry’s biggest conversations are happening.

I may not own AAPL, but I have treated it as my own from day one. I have invested not just my time and energy but also my heart. Every milestone we’ve reached has been personal for me. Every challenge we’ve faced has made me more determined. And every success we’ve celebrated has been sweeter because we’ve done it together.

This is not just my story—it’s our story. It’s the story of a team that believed in something bigger than themselves, of members who showed up and leaned in, of an industry that chose collaboration over competition.

As I look to the future, I’m filled with the even more excitement than I had 12 years ago. Our industry is innovating and stepping into a new era. There are still challenges ahead, but there is also endless possibility. And AAPL will continue to be there—leading, educating, advocating, and building bridges —just as we always have.

LINDA HYDE President, American Association of Private Lenders

To every person who has been part of this journey: thank you. You are the reason AAPL is what it is today, and the reason I am so proud of the work we do. Together, we’ve built something extraordinary, something to be celebrated. And we’re just getting started.

From Boom to Balance

Inventory, pending ratios, and price cuts reveal a market recalibrating fast—and creating new investor openings.

DAREN BLOMQUIST, AUCTION.COM

The housing market downshifted decisively in 2025 as stubbornly high mortgage rates, tariff uncertainty, and a more laissez faire housing policy from Washington became part of the market milieu.

This downshift manifested in more inventory for sale and slowing demand, putting downward pressure on prices

and upward pressure on delinquencies and foreclosures. The market’s prevailing winds swung more in favor of buyers and against sellers—even as buyers got more skittish about buying amid uncertainty (see Fig. 1).

These three metrics will be early indicators of whether the market winds from 2025 continue in

2026 or reverse—and how much momentum will be behind them:

» RETAIL INVENTORY (SUPPLY)

» PENDING RATIO (DEMAND)

» PRICE CUTS (PRICING)

Understanding the prevailing housing market winds is important for real estate investors, including those buying distressed properties at auction. Bidding

behavior on Auction.com demonstrates that real estate investors are adjusting their acquisition and pricing strategies in response to retail market trends, often ahead of retail market trends based on early indicators like these three metrics.

If the market continues to swing in favor of buyers, savvy investors could see an opportunity to go against the grain and acquire more inventory at bigger discounts, but may need to hold more as rental inventory. If the market swings back in favor of sellers, savvy investors may be willing to buy at lower discounts given the opportunity for higher returns on homes renovated and resold back into the retail market.

“My hold time from two years ago was averaging 120 days. Now I have properties that are sitting with over two years on the market,” wrote a Texas-based Auction.com buyer in a July survey. “Homeowners are starting to drop prices to sell homes to ward off foreclosure, which is starting to create a lower appraised value … for investors. The market is starting to see more foreclosures.”

Despite the downshifting market, 37% of Auction.com buyers surveyed in July said they plan to buy more properties in the next three months than they did in the previous three months. That was up from 33% in the previous quarter but down from 39% a year ago.

The Texas-based buyer said he plans to buy more in the next three months than he did in the previous three months.

“I’ve got money to spend,” he wrote.

RETAIL INVENTORY (SUPPLY)

Inventory of existing homes for sale in July increased 25% from a year ago to a 68-month high, making it the highest level since November 2019 and the 21st consecutive

month with an annual increase, according to Realtor.com data. It was the third consecutive month with inventory of more than 1 million.

This upward trend in inventory is putting downward pressure on home price appreciation, particularly in markets where inventory has risen above 2019 levels—when the housing market was more balanced between buyers and sellers.

One-third of markets (302 out of 925) registered for-sale inventory in July 2025 that was above July 2019 levels, according to the Realtor.com data. The markets included Miami, Houston, Dallas, Tampa, and Phoenix (see Fig. 2).

Many of these same markets are seeing home price declines. According to data from ICE Mortgage Technology, one-third of markets saw a decline in home prices on a year-over-year basis in July, including Miami, Houston, Dallas, Tampa, and Phoenix.

To the extent the upward trend in inventory of existing homes for sale continues, expect to see continued pressure on home price appreciation and more markets with negative home price appreciation in 2026. On the other hand, if inventory turns a corner and heads lower, expect to see a rebound in home price appreciation in 2026.

For buyers of distressed properties at auction, more retail inventory likely will translate into less competition and deeper discounts, while lower retail inventory likely will translate into more competition and smaller discounts. This relationship between retail inventory and competition and discounts at auction is illustrated in Figure 3.

PENDING RATIO (DEMAND)

The pending ratio of for-sale inventory is an important but often-overlooked

housing metric that helps measure the extent and direction of demand from retail homebuyers. This metric is simply the percentage of homes for sale that are under contract to be sold. A higher percentage indicates stronger demand, and a lower percentage indicates weaker demand.

Nationwide, the pending ratio was 41.8% in July, according to the Realtor.com data. That was down from 44.6% in the previous month and down from 50.7% in July 2024 to the lowest July reading since 2019. July was the 39th consecutive month with a yearover-year decrease in the pending ratio.

The pending ratio in July 2025 was below July 2019 levels in 269 out of the 925 metro areas included in the Realtor.com data (29%). These markets include Miami, Houston, Dallas, Atlanta and Los Angeles. Retail housing demand has fallen below

pre-pandemic levels in those markets, giving buyers the upper hand (see Fig. 4).

A lower pending ratio means less demand for housing, which works in favor of real estate investors on the acquisition but works against them on the disposition. If the downward trend in retail housing demand continues, investors can expect to see less competition and better discount buying opportunities at auction but also see longer hold times to sell renovated properties (see Fig. 5). This is a trend that may push investors to hold more properties as rentals.

PRICE CUTS (PRICING)

Rising for-sale inventory (supply) and a falling for-sale pending ratio (demand) indicate mounting downward pressure on home prices and bigger potential discounts for real estate investors. But the share

of for-sale listings with price cuts shows whether that downward pressure is enough to motivate sellers to actually lower pricing.

According to the Realtor.com data, 20.6% of for-sale inventory in July 2025 had a price cut, down from 20.8% the previous month but still up from 19.5% in July 2024. Although the month-over-month decline in price cut share could indicate some easing of pressure on sellers, the July 2025 reading was still the highest of any July since 2018, and it was the eighth consecutive month with a yearover-year increase in price cut share.

The share of active for-sale listings with price cuts in July 2025 was above July 2019 levels in 681 of the 925 metro areas included in the Realtor.com data (74%). These markets include Miami, Houston, Dallas, Atlanta, and Los Angeles (see Fig. 6).

Rising for-sale inventory and a falling for-sale pending ratio indicate mounting downward pressure ...”

These trends indicate the combination of rising supply and weakening demand is pushing nearly three-fourths of local markets into buyer market territory. In these markets, more sellers are capitulating on pricing than they were doing so in the balanced market of 2019.

If the share of active listings with price cuts continues to rise, it will further reinforce the implications of rising inventory and falling demand for real estate investors (see Fig. 7). In this

scenario, investors can expect to find more and better acquisition opportunities, providing they are willing to go against the grain and be willing to buy when retail buyers are pulling back.

Investors should also expect to hold on to their inventory for longer. Those willing to take on more inventory in the short term will likely be rewarded in the long term because they will be in a position to capitalize on that inventory when the market recovers.

Daren Blomquist is vice president of market economics at Auction.com.

In this role, Blomquist analyzes and forecasts complex macro and microeconomic data trends within the marketplace and greater industry to provide value to both buyers and sellers using the Auction.com platform.

Blomquist’s reports and analysis have been cited by thousands of media outlets nationwide, including all the major news networks and leading publications such as The Wall Street Journal.

Inside the East Coast Fraud Scheme

Unrecorded loans, rapid flips, and inflated appraisals left clues to one of the largest incidents to hit our industry to date.

MICHAEL FOGLIANO AND SEAN MORGAN, FORECASA

In July 2025, Fannie Mae issued an alert about a growing pattern of fraudulent activity involving twoto four-unit investment properties concentrated in New Jersey and surrounding mid-Atlantic and Northeast states. The schemes are complicated with many parties (mortgage brokers, multiple limited liability companies, and settlement companies) working together to manipulate the refinance process.

As a result, the market is on high alert.

THE PATTERN

To remain vigilant, become familiar with the following patterns that could indicate fraud.

The most prevalent fraud pattern involves rapid property transfers between related

LLCs at artificially inflated prices. Properties are purchased and resold within 60 to 180 days between multiple LLCs. Each transaction is supported by fraudulently inflated appraisals (from an appraiser in on the scam) that can dramatically increase the value of property very quickly. This large increase in property value in a very short amount of time is a red flag. The artificial increase in value allows fraudsters to secure loan amounts greater than legitimate market values would support.

Another red flag to watch for is if the original loan is not publicly recorded. Fannie Mae reported that with the help of settlement companies in on the scheme, fraudsters avoid recording hard money loans originally taken on the property, but keep them on title commitments. This helps fraudsters obtain a limited cash out refinance from a future lender. Since full cash out refinances have more stringent requirements, fraudsters will get a limited cash out refinance.

The most prevalent fraud pattern involves rapid property transfers between related LLCs at artificially inflated prices.”

Overall, the schemes rely heavily on hidden ownership structures to create confusion and distance in transaction history, misrepresented property values by malicious appraisers, and settlement companies not recording liens.

Fraud has many forms. Here’s just one example.

First, ABC LLC purchases a property for $200,000, representing its actual market value. ABC LLC pays $50,000 in cash and uses a $150,000 loan that does not get recorded but shows up on the title commitments in the refinance process.

Then, within 30-60 days, the property deed is transferred to related entity XYZ LLC.

At day 60, a new appraisal commissioned by the network shows an inflated value of $350,000—a 75% markup that bears no relation to actual improvements or market conditions.

By day 90, an individual of XYZ LLC applies for what appears to be a “limited cash-out” refinance seeking $280,000.

The lender sees $150,000 of private financing on the title commitment. Finally, $130,000 is extracted through fraudulent refinance ($280,000-$150,000).

The property enters preforeclosure within six months as the inflated loan becomes unsustainable.

In short, by creating artificial value in the property, the fraudster misrepresents the true loan-to-value ratio and their actual cash investment in the properties. This allows the fraudster to extract inflated equity from the property.

Monitoring all of this is challenging. Forecasa tracks these events and normalizes entity names to make this monitoring process easier and more transparent for lenders. Even if someone is operating under multiple LLCs, you can see their entire transaction history in one place. Additionally, we are tracking what we are calling “bad borrowers” on an ongoing basis. Lenders can subscribe to the list, which is updated monthly.

When looking at pre-foreclosure filing nationwide, we can see an increase in pre-foreclosures with private lenders over the last few years. The figure on the preceeding page shows that from 2022 through mid-2025, traditional mortgage pre-foreclosure filings remained relatively stable, but private lending pre-foreclosure filings increased significantly.

Note: Pre-foreclosure filings (private lending) counts all pre-foreclosure filings with a private lender present on the transaction. There may be more pre-foreclosure filings tied to a private lending loan where the private lender is not listed on the preforeclosure. Preforeclosure filings (non-private lending) are all pre-foreclosures without a private lender listed on the transaction.

Preforeclosure filings with private lenders increased from 1,434 quarterly filings in first quarter 2022 to 4,011 in second quarter 2025—a 179% increase over just 3.5 years. The growth wasn’t perfectly linear, with

RECOMMENDATIONS FOR LENDERS

NETWORK ANALYSIS. Map relationships among borrowers, LLCs, and properties using tools like Forecasa to spot coordinated schemes.

PROPERTY INTELLIGENCE. Scrutinize property transaction history for:

» Rapid ownership changes.

» Sharp price increases.

» Renovation claims.

» Properties with multiple transactions in 12 months needing extra review.

SETTLEMENT CONTROLS. Verify that all liens are recorded correctly:

» Use procedures to detect off-record financing.

» Require comprehensive lien affidavits.

» Ensure penalties for misrepresentation.

RECOMMENDATIONS FOR FUND INVESTORS

DUE DILIGENCE. Before investing in a private fund, demand details on:

» Fraud prevention.

» Geographic limits.

» Past loss history.

Be cautious with funds operating in high-risk markets or with known problematic originators.

DIVERSIFICATION:

» Limit exposure in crowded or fraud-prone regions.

» Spread investments across multiple geographic areas to reduce concentrated risk.

PERFORMANCE MONITORING:

» Track portfolio metrics such as rapid defaults or unexpected performance deviations.

» Use early warning systems to identify and limit emerging fraud losses.

its largest increases occurring at the start of each calendar year. It’s possible that in the past, private lenders were not recording pre-foreclosures as a common practice, which could impact the increase seen here.

Meanwhile, pre-foreclosures without private lender involvement followed a different trajectory. Starting at 101,151 quarterly filings in first quarter 2022, they fluctuated within a relatively stable

range, declining to 108,880 by second quarter 2025. Although traditional lenders maintained steady foreclosure patterns, private lending defaults have been increasing. Here are highlights of some key quarterly pre-foreclosure milestones for private lending pre-foreclosures overall during the last few years:

» 2022: PRIVATE LENDING PFCS AVERAGED 1,627 PER QUARTER

» 2023: AVERAGE JUMPED TO 2,733 PER QUARTER (+68%)

» 2024: AVERAGE REACHED 3,558 PER QUARTER (+30%)

» 2025: ON PACE FOR 3,955 PER QUARTER

Among private lenders originating mortgages between July 2024 and July 2025, we reviewed all their borrowers and tracked which ones had any pre-foreclosure history. Any borrower that has ever been on a pre-foreclosure filing is counted as a “Bad Borrower.” The findings demonstrate a variation in underwriting standards and risk management practices across the industry.

The top 25 private lenders by mortgage originations demonstrated relatively conservative risk profiles. On average, 2.5% of each lender’s borrowers had a preforeclosure in the past. A low percentage could signal that the top private lenders are using effective screening procedures to identify and avoid problematic borrowers. However, the range within this group was significant. The most conservative lender maintained a bad borrower rate of just 0.6%, while the highest-risk lender in the top 25 reached 5.8%—nearly 10 times higher. This spread indicates that even among high-volume lenders, risk management approaches vary.

When expanding the analysis to all private lenders with at least 10 unique borrowers

during the period, the average bad borrower percentage increased to 4.4%. This 76% jump from the top 25 average suggests that smaller or newer private lenders may have less stringent underwriting standards or less sophisticated risk assessment capabilities.

MARKET IMPACT

Lenders understand that association with fraudulent actors, even unknowingly, can result in significant financial losses and regulatory scrutiny. Thus, the fraud revelations have prompted swift defensive measures across the private lending industry. Some lenders have paused activity in Baltimore and other high-risk markets identified in Fannie Mae’s alerts. In the Baltimore MSA, specifically, we can see that from May to July 2025, private lending originations are down 36% compared to private lending originations from the previous three months (February–April 2025).

Private lenders are implementing enhanced due diligence procedures that go far beyond traditional credit checks. New standard practices include detailed property history analysis, ownership verification for LLCs, and mandatory recorded lien searches. These measures, while necessary for fraud prevention, add time and cost to the lending process. Additionally, lenders are now scrutinizing relationships with appraisers, title companies, and settlement agents, creating additional compliance layers that legitimate borrowers must navigate.

Since lenders have responded, the markets associated with fraud schemes face reduced liquidity. The reduction in lending activity impacts real estate investors who depend on private lending for time-sensitive transactions.

Although fraud schemes have created significant challenges, the rapid industry

response and emerging risk management practices suggest the market is adapting. Lenders, investors, and regulators who pay attention to these leading indicators will be better positioned to navigate the evolving risk landscape and maintain access to capital for legitimate borrowers.

Michael Fogliano is a product manager at Forecasa, responsible for product development and data analysis. After studying mathematics, Fogliano gained experience in several different industries but always worked with complex data.

Sean Morgan is the founder and CEO of Forecasa, where his primary focus is product and business development. With a background in oil and gas intelligence, Morgan and his team achieved a successful exit several years ago before entering the lending analytics space. Morgan began his career as a CPA for PwC, cultivating a strong foundation in data interpretation and strategic insights.

DSCR Leaves Bridge in the Dust

July marks the fifth consecutive record month for DSCR loans, even as bridge markets decelerate.

NEMA DAGHBANDAN, ESQ., LIGHTNING DOCS

Lightning Docs is a fully automated, cloud-based loan document solution developed by Fortra Law. In addition to providing automated loan documents

for private lenders, Lightning Docs serves as a source of aggregated data to add clarity to the private lending industry. So far this year, more than 34,000 loans have

run through the platform, including 16,776 bridge loans and 17,614 DSCR loans. This volume makes Lightning Docs a strong barometer of overall market activity.

This article reports actionable insights private lenders can use to navigate today’s market with more confidence.

BRIDGE LOAN VOLUMES

The year 2025 began with stable growth in bridge lending. Recent months have averaged around 2,000 loans per month from Lightning Docs users that have been active since the start of 2024. Year-to-date, that represents a 38% increase over last year, with every month so far recording at least a 24% year-over-year gain. However, the pace of expansion has started to ease. Certain markets like San Diego continue to perform exceptionally well, but the national trend since April indicates a gradual deceleration in bridge loan growth (see Fig. 1).

DSCR LOAN VOLUMES

The growth of DSCR loans has been the story of the year. July set a record with 2,844 loans created in Lightning Docs by just 40 DSCR users who’ve

DEFINITIONS

A bridge loan is any loan with a duration of 36 months or less utilizing interest-only payments for the duration of the term and containing a balloon payment at the end of the loan. Bridge loans are commonly referred to as residential transition loans, fix-and-flip, nonowner-occupied, hard money, or in other terms that describe a short-term loan generally secured by a residential property for investment purposes.

METHODOLOGY

DSCR loans are 30-year term loans secured by rental properties. The primary underwriting for these loans divides the monthly net operating income of the property by the monthly debt service.

A user refers to a unique company using the Lightning Docs platform. If multiple individuals within the same company access the platform, they are collectively counted as a single user.

» Loans below $50,000 and above $5,000,000 have been removed from the data set.

» Loans with interest rates below 4% and above 20% have been removed.

» For loan volumes, the user must have signed up with Lightning Docs prior to 2024.

been with us since the start of 2024. That marks a 96% increase compared to last July, and a 109% year-to-date gain. With five consecutive record-setting months, the momentum behind DSCR lending shows no signs of fading (see Fig. 2).

BRIDGE LOAN RATES AND AMOUNTS

On the national scale, bridge loan interest rates have been on a steady decline for the last 12 months. They are down 73 basis points from July 2024, thanks to a drop in 11 of the last 12 months. Average loan amounts for bridge loans, on the other hand, have been mostly increasing, peaking at more than $732,000 in June.

DSCR AVERAGE RATES AND AMOUNTS

DSCR rates have moved in a less predictable pattern in recent months, dropping to 7.12% in October 2024, rising againin January, and dropping back to 7.48% in July. Average loan amounts have been steady, staying within a $3,000 range from January to

June 2025. At $329,966 in July, DSCR loan amounts were at a multiyear high.

BRIDGE AND DSCR VS. INDEXES

Looking at the 10-year Treasury and consumer mortgage rates alongside bridge and DSCR loans, the market appears to be relatively stable. Despite a new presidential administration, ongoing economic uncertainty, and frequent headlines creating distractions, monthto-month volatility has been limited.

From January through July 2025, all four rates we track remained within a 35-basis-point range, demonstrating consistent conditions for both borrowers and lenders. Spreads between the 10-year Treasury and DSCR rates narrowed to 3.09% in July, the tightest margin observed since January. This compression of spreads reflects strong capital markets interest and continued demand for DSCR loan products.

2. DSCR LOAN VOLUMES BY SAME USERS, JAN. 24-JULY 25

Although monthly averages are helpful, your experience within each month may have felt different. For example, in July the 10-year Treasury opened the month at 4.26%, peaked at 4.50% on July 15, and settled at 4.37% by month’s end. Intramonth volatility is worth watching as it shapes consumer and private lending rates more than any single data point.

As we’re accustomed to seeing, California, Florida, and Texas held down the top three spots on the list of top bridge loan states. Washington is a newcomer to the top 10 this year, becoming just the second Western state on the list alongside California. New Jersey and Pennsylvania are having strong years relative to 2024 (see Fig. 3).

TOP COUNTIES FOR BRIDGE LOANS

There’s a reason California, Florida, and Texas dominate this space: Eight of the top 10 counties are in those three states. Expand to the top 20, and 15 are located there. Zoom out even further and over half (29) of the top 50 are from just those three states (see Fig. 4).

[Bridge loan interest rates] are down 73 basis points from July 2024, thanks to a drop in 11 of the last 12 months.”

A DEEPER LOOK INTO THE TOP 10 BRIDGE MARKETS

Figure 5 highlights volatility in interest rates and loan amounts across the top bridge loan markets. The data illustrates just how local rate trends can be. Nationally, average bridge rates fell seven basis points in July, yet in Los Angeles, our largest market, they rose 14 basis points. Half the top 10 markets saw higher rates in July than in June, with Orange County jumping 35 basis points.

Santa Clara County further underscores

5.

the localized nature of these trends. With an average interest rate of 8.87% in July, it was more than a full percentage point lower than any other county on the list, while simultaneously posting the highest average loan amounts at over $1.5 million.

TOP DSCR STATES

The top 10 states for DSCR loans remained unchanged from June. What’s more notable is that several states—Florida, Ohio, Texas, New Jersey, New York,

California, and Georgia—surpassed their total DSCR loan counts from all of 2024 by the end of July (see Fig. 6).

TOP DSCR COUNTIES

That surge isn’t limited to states. Counties like Cuyahoga, Wayne, Miami-Dade, Harris, Allegheny, and Los Angeles have also already exceeded their 2024 totals. The strength in DSCR lending is broad and growing (see Fig. 6).

6. TOP DSCR STATES AND COUNTIES BY VOLUME,

FIGURE 7. TOP DSCR MARKET ACTIVITY REPORT

Unlike bridge loans, the top 10 DSCR markets more closely followed the national trend in recent months.”

TOP DSCR MARKET ACTIVITY REPORT

Unlike bridge loans, the top 10 DSCR markets more closely followed the national trend in recent months. In fact, all 10 of the top markets saw a decrease in average interest rates from June to July (see Fig. 7).

KEY TAKEAWAYS

The private lending market continues to evolve rapidly, and lenders are adapting just as quickly by finding ways to do more with less, close deals faster, and stay competitive in a high-rate environment. Although there is no one-size-fits-all playbook for growth, one theme keeps emerging: The

lenders scaling the fastest are simplifying workflows, embracing automation, and cutting down on friction wherever possible.

Among Lightning Docs users who have been with us since early 2024, average monthly loan volume has grown 2.35 times—a sign of just how much more efficiently today’s lenders are operating.

The second half of 2025 will test whether the private lending market can sustain its pace of growth. Bridge lending has flattened, DSCR demand continues to rise, and rates remain a stabilizing force. Together, these trends suggest a market that is healthy, adaptable, and poised for continued expansion.

Nema Daghbandan, Esq. is the founder and CEO of Lightning Docs, a proprietary cloud-based software that produces business-purpose mortgage loan documents nationally. The software produces attorney-grade short-term bridge, construction, and other temporary financing, and term financing typically associated with DSCR rental loans.

As a real estate finance attorney and partner at Fortra Law, Daghbandan understands the needs of private mortgage lenders. For more information about Lightning Docs, visit https://www.lightningdocs.ai/.

Lock Down Your Disclosures

Stop lawsuits before they start by putting every fee change in writing.

STEVEN E. ERNEST, ESQ., FORTRA LAW

Principled lenders occasionally find themselves navigating ethical gray areas—not through malice, but through oversight, ambiguity, or the breakneck pace of deal flow. As compliance demands continue to evolve and competition intensifies, it becomes easier than ever to unwittingly stray from ethical commitments you agreed to uphold as an AAPL member.

Some standards are harder to violate unintentionally—few members set out to deceive borrowers or defraud investors. But others can trip up even well-intentioned professionals.

One of the most commonly and inadvertently breached standards is the duty to clearly disclose all fees and changes in writing. Let’s examine that ethical standard, the ripple effects of such a lapse, and outline the best practices, checks, and corrective measures to protect both your operation and the industry as a whole.

WHERE THINGS GO ”PEAR SHAPED”

You’re in the middle of a high-speed bridge loan transaction. The borrower is in a pinch, the timeline is tight, and new information is coming in by the hour. You’ve quoted an interest rate,

outlined fees, and disclosed the usual closing costs. But then title throws in a curveball, or the borrower’s entity changes, or a broker wants their fee adjusted at the eleventh hour. Somewhere along the line, something material shifts in the deal economics.

You relay the change in a call or a quick email, but the deal still closes. Everyone signs. Everyone gets funded. And yet, you may have just violated AAPL’s Code of Ethics.

The relevant provision?

“Members shall take reasonable steps to promptly inform customers in writing of fees and costs associated with the transaction, including any changes therein.”

That’s not optional. In the current environment—where rising rates, increased borrower defaults, and market volatility are driving more amendments, re-trades, and deal pivots than ever before—it’s also one of the easiest standards to slip past you.

THE ETHICAL VIOLATION IN FOCUS

Failing to document and disclose changes to costs in writing, even when the borrower

Failing to document and disclose changes to costs in writing, even when the borrower verbally agrees, undercuts the transparency and trust that define ethical lending.”

verbally agrees, undercuts the transparency and trust that define ethical lending. It violates both the letter and the spirit of your obligation under AAPL’s Code of Ethics. Further, many states codify a general prohibition of “deceptive practices,” which may also open the door to claims under consumer protection statutes (e.g. California Business and Professions Code § 17200, New York General Business Law § 349, Florida Statutes § 501.201 et seq.). These allegations of unfair business practices may result in rescission rights in extreme cases.

You might think you’re safe because the borrower signed the loan docs. But if the final terms differed materially from the initial quote, and those changes weren’t documented in writing ahead of closing, you’re skating on thin ice. Who gets to decide if the difference was “material?” It might not be you.

TRUST, LAWSUITS, AND INDUSTRY REPUTATION

Here’s the blunt truth: Private lending still fights an uphill battle against outdated stereotypes (hard money sharks, bait-and-switch tactics, lenderowned foreclosures). Whether those perceptions are fair or not, the onus is on you to operate in a way that holds up to scrutiny. Ethical lapses, intentional or

not, feed the narrative that private lenders are opportunistic and unregulated.

On a practical level, lack of written disclosures invites litigation. Borrowers with buyer’s remorse (especially defaulting ones) have weaponized this gap in documentation. Plaintiffs’ lawyers know it’s often easier to allege fraud or breach of contract when a lender can’t produce a signed disclosure of revised costs.

More broadly, ethical missteps— particularly ones tied to money—erode borrower confidence and attract unwanted attention from regulators. With many state regulators — including California’s Department of Financial Protection and Innovation (DFPI) and the Colorado Division of Securities— increasing their focus on non-bank lenders and consumer litigation on the rise, you can’t afford the exposure.

HOW TO SPOT THE GAPS

Here’s where you take a hard look in the mirror. Conducting a self-audit now can save you a demand letter, or worse, down the line. Start by asking yourself some tough questions. Do you have a standardized process for disclosing all fees and changes in writing, and is every disclosure documented, timestamped, and included in the file? Are your brokers

and processors trained to flag fee or term changes so updated disclosures are issued on time? Or is your team relying on verbal or email communication that doesn’t make its way into a formal disclosure form? Finally, are you relying on a single “initial terms” document without consistently issuing updated ones?

If you answered “no” or “I’m not sure” to any of the above, you’re exposed.

BEST PRACTICES TO STAY COMPLIANT

Compliance doesn’t have to slow you down; it just has to be built into your systems. Here’s how to structure your operations to prevent ethical violations.

HAVE THE BORROWER SIGN UPDATED TERM SHEETS. Whether you use a term sheet, letter of intent, or some other form of terms disclosure, promptly obtain the borrower’s signature to any updated term sheet as the terms change.

CENTRALIZE DOCUMENTATION. Use a secure document management system to store all signed disclosures and change forms in one place. Ensure version control is part of the process.

SET A TRIGGER PROCESS. Train your loan processors to flag (or have it automated) any economic changes before closing. Make the disclosure requirement part of your closing checklist.

USE E-SIGN PLATFORMS FOR SPEED. Don’t delay deals for wet signatures. Use DocuSign or another compliant platform to ensure borrowers formally acknowledge all cost revisions.

AUDIT FILES POST-CLOSE. Perform monthly or quarterly audits of recently closed deals. Look specifically for last-minute changes in terms and whether they were properly disclosed and signed.

INVOLVE LEGAL EARLY. If your borrower is under stress or pushing back on terms, run the issue by counsel before finalizing a change. This not only protects your ethics—it protects your enforceability.

HOW TO MAKE IT RIGHT WHEN YOU SLIP

Mistakes happen. The issue isn’t whether you’re perfect—it’s how you respond.

If you close a loan and realize post-closing you failed to provide a proper written disclosure of revised fees, act fast.

DOCUMENT THE TIMELINE IMMEDIATELY. Reconstruct the events: when the change occurred, how it was communicated, and whether there’s any written evidence (e.g., email) of the borrower’s acknowledgment.

SEND A RETROACTIVE DISCLOSURE WITH A MEMO. While not a fix-all, sending a formal disclosure—even post-close—helps demonstrate transparency. Include a cover memo acknowledging the oversight.

OFFER A CONCESSION IF WARRANTED. If the borrower is aggrieved and the discrepancy is material, consider offering a small credit or adjustment. A $1,000 concession now may prevent a $250,000 lawsuit later.

UPDATE YOUR INTERNAL PROCESSES. Log the failure, identify what went wrong operationally, and update your process to ensure it doesn’t happen again. This not only mitigates liability—it creates an audit trail of continuous improvement.

YOUR REPUTATION SHAPES OUR INDUSTRY

Ethical lending isn’t about avoiding lawsuits. It’s about earning trust, reinforcing your professionalism, and elevating your industry. As a member of AAPL, your reputation reflects on all of us. That’s why a commitment to written, timely, and transparent

disclosures isn’t just a best practice— it’s a professional obligation.

The good news? The fix is straightforward. The discipline is teachable. And the payoff is a stronger, safer, and more sustainable lending business—one that borrowers respect, courts uphold, and regulators leave alone.

Stay sharp. Stay ethical. And don’t let a sloppy process tarnish a strong deal.

STEVEN E. ERNEST, ESQ.

Steven E. Ernest has an extensive transactional and litigation background, having filed and brought thousands of commercial cases to judgment. His focus has been for clients in the financial sector, successfully defending the world’s most prestigious luxury automaker in antitrust, warranty, and fraud cases. As regional counsel to nationwide lenders, he has written their credit, purchase, and other transactional documentation, as well as export compliance, FCPA, and other regulatory compliance.

Ernest received his undergraduate degree from The American University in 1993 and his Juris Doctorate from the University of Miami School of Law (cum laude) in 1996. He was admitted to the State Bar of California in 1996 and is a member of the Bars of the Central, Southern, Northern, and Eastern Districts of California.

Draw the Line

Shortcuts and workarounds inside lending firms are opening the door to systemic abuse.

SAM KADDAH, LIQUID LOGICS

EDITOR’S NOTE

AAPL’s Ethics Committee recently met to review concerns raised by an anonymous AAPL member. While we believe the matter to be an isolated incident that has since been addressed, it’s important to discuss this and similar ethical issues openly with our community.

Though written by a member of our Ethics Committee, this article represents AAPL’s position as related to our Code of Ethics.

Acommon misconception is that fraud in lending originates primarily from borrowers, such as falsifying income or inflating property values. However, unethical practices within lending institutions often create fertile ground for fraud to flourish.

Examples of concerning practices include coaching borrowers on ways to circumvent investor funding guidelines, or shopping for multiple appraisals until a favorable one is found, while disregarding less favorable valuations. Some involve failing to validate sources of funds and “looking the other way” when red flags appear, or structuring transactions specifically to bypass credit standards set by capital providers or aggregators. Others mask

lack of liquidity by adding payment reserves into the loan proceeds.

These actions may not always meet the strict legal definition of fraud, but they erode the integrity of the system in ways that are equally damaging. And, importantly, they are a direct violation of AAPL’s Code of Ethics. Much like cybersecurity breaches often start with insider vulnerabilities, fraud in private lending is often enabled, or even encouraged, by those within the organization.

CULTURAL PRESSURE

Unethical behavior rarely arises in isolation. In many cases, it is a byproduct of systemic

pressures. Lending firms often face aggressive quarterly profit targets, pushing executives, originators, and underwriters to prioritize volume over quality.

This pressure creates an environment in which inflated valuations go unchallenged, credit depth is ignored if FICO scores appear sufficient, appraisals are “shopped” until they fit the deal structure, or underwriting guidelines are deliberately vague or inconsistently applied.

When these practices become culturally acceptable within a business, they not only increase financial risk but also normalize behavior that borders on deception. The line between aggressive deal-making and fraudulent misrepresentation becomes increasingly difficult to distinguish.

CASE STUDIES THAT CROSS THE LINE

MANIPULATING APPROVAL PROCESSES. In one documented case, a lender requested that its loan origination system provider generate two different sets of approval letters for the same deal. Each version contained different calculations of loan-to-cost (LTC),

after-repair value (ARV), and loan-to-value (LTV). The version given to the borrower overstated reserves, giving the appearance of liquidity. The version sent to the capital provider used a different calculation to mask the fact that required reserves were being funded directly from loan proceeds.

This deliberate manipulation not only circumvented aggregator credit guidelines but also misrepresented the borrower’s true financial position. And the risk goes even further: If a technology provider allowed this kind of practice to occur systemically, it could institutionalize the fraud.

EXPLOITING PERSONAL RELATIONSHIPS. Another example highlights the risks of blurred personal and professional boundaries. A relatively new lender sought to establish credibility with a capital provider by cultivating a close, “friendly” relationship with a key decision-maker. Over time, this personal connection influenced underwriting approvals, allowing loans to pass through that did not meet objective standards. Although networking is a legitimate business tool, using personal leverage

to override risk controls undermines fairness and accountability.

BROADER INDUSTRY CONCERNS

These cases are not isolated incidents but symptoms of a larger issue: the private lending sector’s vulnerability to ethical drift. Several structural factors contribute.

SUBJECTIVE APPRAISALS. Property valuations often contain a degree of subjectivity, leaving room for manipulation when lenders or brokers selectively emphasize certain comparables.

INCONSISTENT UNDERWRITING STANDARDS. Without clear standard operating procedures (SOPs), underwriting becomes a matter of discretion rather than discipline.

CAPITAL PROVIDER DEPENDENCE. Lenders that rely on external capital sources may feel compelled to “massage” loan files to meet investor criteria, even when doing so misrepresents borrower risk.

The result is a cycle where questionable loans get funded, losses mount, and confidence in the sector erodes.

ETHICS AS RISK MANAGEMENT

The stakes are high. Fraud and unethical practices not only harm individual investors and borrowers but also tarnish the credibility of the entire private lending market. To mitigate, experts recommend the following safeguards.

STRENGTHEN UNDERWRITING INTEGRITY. Lenders should enforce strict SOPs, requiring independent third-party verification of borrower liquidity, collateral values, and repayment capacity. Dual or manipulated approval processes must be eliminated through system safeguards.

IMPLEMENT TRANSPARENCY STANDARDS. Clear disclosure of loan terms, appraisal methodologies, and underwriting assumptions should be mandatory. Transparency builds trust with both borrowers and capital providers.

MONITOR AND AUDIT INTERNALLY. Internal audits, combined with external reviews, can help detect patterns of misrepresentation. Whistleblower protections further encourage employees to report unethical practices.

ALIGN INCENTIVES WITH LONG-TERM PERFORMANCE. Compensation models that prioritize short-term loan volume over portfolio performance incentivize

risk-taking. Rebalancing incentives to reward sustainable performance reduces pressure to cut corners.

FOSTER AN ETHICAL CULTURE. Emphasize that integrity is nonnegotiable, providing ongoing training and setting clear expectations for all employees and partners.

Our industry occupies a vital space in the financial ecosystem, but its growth has exposed vulnerabilities. While borrower misconduct remains a concern, the greater risk lies in shortcuts taken by lenders themselves—whether through appraisal shopping, biased approval processes, or leveraging relationships to bypass underwriting rigor.

Sam Kaddah is the president and CEO of Liquid Logics. He is skilled in building consensus, producing results, and streamlining operations. His career is characterized by leadership that achieves efficiencies and revenue while maintaining quality. Liquid Logics provides fintech and NextGen SaaS for the private equity lending space.

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Create Your Custom GPT

Here’s how to tailor a large language model to boost efficiency and accuracy in your lending business.

KIRILL

BENSONOFF, NEW SILVER

Real estate lenders are working hard to adapt and innovate as technology evolves and borrower expectations shift. One of the most significant areas of transformation is the speed and efficiency of lending processes. Artificial intelligence (AI) plays a critical role in this transformation. With speed now a top priority for borrowers, AI is well-positioned to shape the future of private lending. More lenders are adopting this technology to remain competitive and responsive. Maximum efficiency, particularly in time-intensive areas such as appraisal reviews, is no longer optional.

This guide offers a practical, hands-on approach for private lenders looking to implement AI tools, with a focus on GPT technology. For those aiming to improve speed and accuracy in appraisal reviews, a custom GPT offers a highly tailored and effective solution. Although this walk-through uses OpenAI’s ChatGPT as an example, the steps also apply to other large language models such as Microsoft Copilot and Anthropic’s Claude, with slight adjustments.

WHAT CAN A CUSTOM GPT DO?

A custom GPT is a version of ChatGPT a user creates and trains

for a specific purpose. You can simply tell the GPT builder what you want to achieve, and the system helps you build a tool around that task.

Although they may sound similar, ChatGPT and a custom GPT are not the same. ChatGPT refers to the general-purpose Generative Pretrained Transformer; a custom GPT is a tailored version that can serve a narrow and well-defined function such as reviewing appraisals.

The benefits of a custom GPT include the ability to create specific prompts, upload your own documents for reference, and generate consistent, tailored outputs that align with your internal processes.

SET UP A CUSTOM GPT

The good news is you don’t need coding skills or a tech background to build your own GPT. OpenAI’s tools are designed to be user-friendly and accessible. Here’s a step-by-step guide for private lenders to create a custom GPT that supports appraisal reviews.

STEP 1: CREATE YOUR GPT. Before anything else, you’ll need access to a ChatGPT account. Once logged in, navigate to the

“Explore GPTs” section on OpenAI’s platform. Click on “Create a GPT” to begin the guided setup process (see Fig. 1).

STEP 2: BEGIN PROMPTING. In the Create panel, enter your first prompt to guide the GPT’s behavior (see Fig. 2). A good example might be:

“You are a real estate lending assistant. Your job is to review residential real estate appraisals and extract key information

including property value, condition, comparable properties (comps) analysis, red flags, and neighborhood insights.”

This gives the model a strong foundation for how it should function. The goal here is to establish its personality and task scope. You can also include details on how you want the GPT to format its responses (e.g., bullet points or section headers) to match your team’s preferences.

The clearer the initial instruction, the less tweaking you’ll need later.

Press Enter to allow the system to begin configuring the GPT.

STEP 3: WORK WITH THE GPT BUILDER.

Once the initial prompt is set, the GPT builder will begin generating behavior for your GPT. You can now refine the GPT’s instructions by interacting with the Preview panel in real time (see Fig. 3). For example, you might add:

“Flag any inconsistencies between comps and the appraised value.”

The GPT builder will make recommendations as you go. You can accept

these suggestions, reject them, or modify them to better suit your process. This backand-forth helps ensure the GPT outputs exactly what you’re looking for. Try prompts with vague appraisals or multiple comps to ensure the GPT handles variation well.

STEP 4: REFINE WITH FILES AND ENABLE UPLOADS. Enable the file upload feature so you can drag and drop appraisal PDFs directly into the GPT chat (see Fig. 4). You can also upload example files and add test questions to check the model’s ability to interpret specific appraisal formats or terminology. This step is key to making the GPT adaptable to your business.

If the model needs more context or seems to miss details, continue refining the instructions. You might need to include additional expectations such as: “Highlight whether the subject property lacks recent comps within one mile.”

Adding clear examples and constraints makes the GPT more reliable. Equally important is ensuring clear file inputs, because the automation is only as good as the information it receives.

STEP 5: TEST AND REVIEW OUTPUTS. Once your GPT is configured, test it using real or sample appraisal reports. Review its summaries and responses to make sure it’s capturing the right data points, red flags, and observations (see Fig. 5). If something isn’t correct, revise your prompts or instructions. Keep your prompts concise but clear. The cleaner your instructions, the better the model will perform. Run multiple tests to see how it handles different types of appraisals.

STEP 6: FINALIZE AND CUSTOMIZE. Now that your GPT is functioning correctly, you can personalize it further. Give it a name like “MyCompany Appraisal Review Assistant,” upload a profile picture, and update the

Adding clear examples and constraints makes the GPT more reliable. Equally important is ensuring clear file inputs ...”

system description. Adding a short internaluse summary of what the GPT is designed to do can also help new users on your team use it more effectively (see Fig. 6). Review the builder-generated conversation starters and modify them to align with your team’s needs.

Once everything looks good, click Create to publish your GPT. You can share it privately with your team or make it publicly accessible. From here, it’s ready to use in your daily workflow.

PUT YOUR CUSTOM GPT TO WORK

An appraisal review is one of the most timeconsuming parts of the loan process. A custom GPT can make this easier by handling the first level of analysis. All you need to do is upload an appraisal PDF and provide a prompt like:

“Summarize this appraisal and highlight any issues with comparable properties or condition ratings.”

The GPT will then output a review summary that points out key findings or discrepancies. For example:

“Comp #2 is located 2 miles away and may not be a strong comparable.”

This gives you a fast overview of the appraisal and flags any concerns without needing to comb through the full document yourself. You can also export the GPT’s summary for your team. What used to take 30 minutes or more can now take five minutes or less.

ADDITIONAL USE CASES IN LENDING

Although appraisal reviews are a strong starting point, you can use custom GPTs throughout the private lending process. Here are other valuable applications:

1 REVIEWING BORROWER APPLICATIONS. Use a GPT to review borrower submissions for completeness. The

model can scan documents to identify missing information or inconsistencies, helping you respond to borrowers faster.

2 GENERATING DOCUMENTS AUTOMATICALLY. You can automate the creation of loan documents, such as term sheets or agreements, using data the borrower has already submitted. This reduces manual entry and helps keep your pipeline moving.

3 ANSWERING BORROWER FAQS. Create a chatbot that fields common borrower questions about programs, timelines, required documents, and underwriting criteria. This reduces the burden on loan officers and improves turnaround times for support.

4 ANALYZING PORTFOLIO PERFORMANCE. Use AI to summarize borrower portfolio health and to surface red flags such as missed payments, maturing loans, or opportunities for refinancing. Alerts can also be built into the model to notify your team when a follow-up is needed.

Although this guide walked you through using a custom GPT for appraisal reviews, the same principles apply to many parts of the loan lifecycle. With thoughtful setup and prompting, a custom GPT can become a valuable member of your team.

Kirill Bensonoff, the cofounder and CEO of New Silver, is an advocate for crafting and supporting groundbreaking fintech solutions. He’s spent over 18 years in fintech, real estate, blockchain, and cloud computing and has successfully bootstrapped two high-growth tech companies to multimillion dollar exits.

Take Control of Comps

Eliminate overly-subjective and intentionally misrepresented influence to safeguard every loan you originate.

RODNEY MOLLEN, RICHERVALUES

Whether your lending business has been affected or not—and whether you’ve been aware of recent issues that have impacted many reputable lenders in our space or not— one simple truth exists: The possibility of fraud in valuation exists. When left unchecked, it can cause material financial consequences for lenders of any size. At its core, risk in valuation lies in one thing: subjectivity. In most cases, an appraisal relies on just three comparable sales, or “comps,” to establish value. Because the appraiser chooses which comps to include, how to adjust them, and which sales to leave out, a large degree of discretion is at play. That subjectivity opens the door to another vulnerability: borrowers who try to influence, sway, or even bribe appraisers during the site inspection to ensure favorable comps are used.

This discretionary selection of comps, with additional discretionary adjustments, is the entire basis for establishing a property’s value. The loan, its LTV, and its risk parameters are materially based on this property value, whether it be for as-is value or after-repair value. And therein lies the real risk.

The two biggest risks in valuation, then, are:

THREE COMPS. Value is determined based on the discretionary selection

of only three comparables, with no transparency into other sales in the area.

BORROWER INTERACTION/INFLUENCE.

As the industry has seen recently, bad actors can systematically exploit this weakness by influencing and even bribing appraisers during site inspections. The result? A predetermined set of comps and a manipulated property value.

In private lending, value is everything, and beating the valuation risk is easier than you might think. Let’s look at two approaches in detail.

APPROACH #1: PRIMARY VALUATIONS

If you’re a lender with flexibility to design and adjust your valuation policies, then this option is available to you—ordering valuation products that minimize risk.

Ordering third-party valuation reports establishes value in a more comprehensive way. The accompanying figure offers a set of criteria that can be valuable in your search for the best valuation products to protect your capital.

Valuation reports with bifurcated inspections reduce borrower interaction and the risk of influence or bribes. Reports that use a larger set of comparable properties instead of three discretionary comps provide a more objective analysis—one that is less vulnerable to subjectivity and manipulation.

As we’ve seen with Kiavi, even the largest lenders active in the securitization markets can design thceir own approach to valuations.

APPROACH #2: SECONDARY CHECKS

Sometimes standard appraisals are required, either because lenders lack flexibility in their capital stack or because certain portfolio segments face outside requirements (e.g., RTL vs. DSCR loans, in-house warehouse line vs. outside loan sales).

For these lenders , valuation risk remains key, because lenders can be subject to repurchase risk, and/or losses on balance sheet loans, which end up with collateral that is worth materially less than what the appraisal stated.

EVALUATION CRITERIA FOR VALUATION PRODUCTS

FACTOR

ANSWER

Bifurcated Inspections [y/n]

Borrower Interaction with Valuation Team [y/n] [when/where?]

Number of Valuation

Professionals [#]

Number of Comps

Selected [#]

Transparency to NonSelected Comps [y/n]

Comp Scoring [y/n] [scoring method]

Interior Photos for Comps [y/n] [# photos]

NOTES

The person conducting the site visit is not the same person or team conducting the valuation analysis. This eliminates borrower interaction with the valuation team.

Determine if any opportunities exist for influence or sway.

At least two is ideal, although one is standard.

Ideally 30+ in most markets. Standard products often use three to six.

Provides a basis for evaluating the preparer’s discretion.

Quantitative comparisons enable objective assessment of why certain comps were selected.

Verifies whether comps match the subject property in condition and quality.

In this situation, the best approach is to find a scalable, cost-effective way to run diligence on each appraisal, either by ordering a third-party review or by conducting an internal review.

In either case, lenders should seek partners or adopt an approach that will provide an objective, independent, and wider look at the market. Options for appraisal review can include a thirdparty assessment, a software platform to facilitate internal review, or just a simple “by-hand” checklist for internal review. When developing an internal review checklist or when selecting a thirdparty product for appraisal review, be

sure to include factors that help you identify and mitigate the most risk. At a minimum, consider the following:

» EVALUATE THE COMPS THEY SELECTED.

» EVALUATE THE COMPS THEY EXCLUDED.

» APPLY COMMON ASSESSMENT FACTORS (E.G., SALE DATE, LOCATION, PROPERTY CHARACTERISTICS, CONDITION, AND FINAL VALUATION CONCLUSIONS).

Whether your lending shop has the flexibility to use enhanced valuation products as the primary valuation, or you must meet stricter outside requirements that require an appraisal, there are practical, cost-effective steps you can take to better mitigate valuation risk.

Rodney Mollen is the founder and CEO of RicherValues, a software and valuation services provider that delivers intelligence for lenders and investors on residential assets nationwide. Mollen’s more than 20 years of experience includes acquiring, managing, renovating, and selling over $1.2 billion in REO and NPLs.

Build ADU Portfolios with Care

Rising demand creates promise for lenders who balance opportunity with due diligence.

LARRY MANCHESTER, PARTNER RESIDENTIAL CONSULTANTS

Accessory Dwelling Units (ADUs) are making waves in the housing market, offering a practical solution for homeowners looking to maximize property value, generate rental income, or accommodate multigenerational living. Although ADUs have been around for decades—sometimes as legal conversions, other times as less-than-official backyard

additions—state and local governments are finally catching up by providing more structured guidelines and incentives to support their development.

At its core, an ADU is a self-contained residential unit located on the same lot as a primary home, whether as a garage conversion, detached structure, or home extension. With a private entrance,

kitchen, and bathroom, ADUs function as independent living spaces while remaining tied to the main property.

Their benefits extend beyond individual homeowners. Cities in California, Washington, Oregon, Vermont and others with housing shortages have embraced ADUs to increase density without expanding urban sprawl. For families, they provide a flexible

living arrangement for aging parents, adult children, or caregivers. Additionally, longterm rental income from an ADU can help offset mortgage costs. And when properly designed and permitted, these units can significantly enhance a home’s resale value.

With growing demand and evolving policies, ADUs are emerging as a valuable asset class, presenting lenders with new opportunities to expand their portfolios while supporting housing accessibility and property value growth.

A COMPLEX REGULATORY LANDSCAPE

Not all ADUs are created equal, nor are their regulations. Some states, like

Navigating requirements often requires local expertise, particularly when regulations shift or vary across municipalities.”

California, Oregon, and Vermont, have actively encouraged ADU development by relaxing zoning restrictions, eliminating owner-occupancy requirements, and streamlining the approval process. Others, such as New Hampshire, Washington, and Massachusetts, have enacted laws allowing ADUs “by right,” meaning they can be

built without discretionary approvals; nonetheless, localities retain control over development standards. Meanwhile, many states, including Texas, Florida, and Georgia, lack statewide ADU statutes and leave regulations largely up to local governments, resulting in inconsistent policies from city to city. Navigating these

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requirements often requires local expertise, particularly when regulations shift rapidly or vary across adjacent municipalities. In states where ADUs are permitted, keep the following key considerations in mind.

PERMITTING TIMELINES AND APPROVAL PROCESSES. One of the biggest hurdles to ADU development is the permitting process, which varies widely by state and municipality since approvals are handled locally.

In California, state law requires cities to act on complete ADU applications within 60 days. Beginning in 2025, under California’s AB 1332, homeowners who use a preapproved ADU plan without changes can qualify for an even faster 30day review. In practice, however, approvals in big cities such as Los Angeles or San Diego still often take several months due to high demand, multiple reviews, and resubmittals. By contrast, in states without streamlined laws, such as parts of New York or Colorado, the process can stretch six to 12 months. In some municipalities, ADUs are still not allowed at all.

ADU SIZE RESTRICTIONS. ADU size limitations vary by state and municipality, often based on a percentage of the primary dwelling’s square footage or a set maximum size. In addition, some states also differentiate between detached ADUs, attached ADUs, and conversions of existing spaces, each with unique size limitations. For example, in Oregon, ADU sizes are capped at 800-900 square feet or 75-85% of the primary residence, whichever is smaller. In California, however, detached ADUs may be allowed up to 1,200 square feet, but attached ADUs are capped at 50% of the main home (never less than 800 square feet).

LOT SIZE AND SETBACK REQUIREMENTS. Whether an ADU is feasible often comes

down to the size of the lot and how close the unit can be built to property lines. Some states, like California, have eased restrictions by requiring only four-foot side and rear setbacks and prohibiting cities from mandating oversize lots that would block ADUs. In states without such protections, local governments may still require large minimum lot sizes or deeper setbacks, limiting ADU options on smaller parcels and/or denser neighborhoods.

RENTAL REGULATIONS AND OCCUPANCY

RULES. Rental and occupancy regulations for ADUs can significantly impact both the feasibility and the financial income potential of building one, making them an important consideration for both lenders and borrowers.

Many states—including California, Washington, and Oregon—have lifted owner-occupancy requirements, meaning the primary home and ADU can be rented out independently. That said, some local jurisdictions may still require the homeowner to live on-site if renting out an ADU. The type of rental also matters; in Oregon, vacation rentals may trigger additional owner-occupancy or parking requirements depending on local ordinances. Short-term rental restrictions vary widely as well. For example, San Francisco prohibits ADUs from being used as short-term rentals (e.g., Airbnb), while other cities allow it under specific conditions. This makes it essential to review local rental codes before moving forward.

BULK PLANE RESTRICTIONS. Many cities enforce height and volume limitations to protect neighborhood aesthetics and prevent view obstruction. These limitations often define the maximum allowable building envelope, which can impact the feasibility of two-story ADUs, especially in areas where maintaining sightlines is a priority.

UTILITY AND METERING REQUIREMENTS. Utility connections and metering requirements vary significantly across states and even between utility providers, affecting project costs and feasibility. Some jurisdictions require separate electric, water, or sewer meters for detached ADUs, while others allow them to share utilities with the primary residence. Water and sewer connections can be a significant cost factor, particularly in areas with older infrastructure where capacity upgrades may be needed.

ENERGY EFFICIENCY AND SOLAR REQUIREMENTS. Several states have begun incorporating sustainability mandates into ADU regulations. For example, California’s Title 24 mandates solar panels on newly constructed detached ADUs. Meanwhile, jurisdictions like Boulder, Colorado, impose local energy performance standards for ADUs that align with climate goals. In other areas, energy-efficient construction isn’t required but can unlock valuable incentives such as expedited permitting, additional height, or rebates, like in Seattle.

PARKING CONSIDERATIONS. Parking rules for ADUs vary widely. Many states, including California, Oregon, and Washington, have removed parking requirements for ADUs in areas near public transit, making it easier for urban homeowners to add secondary units. However, suburban and rural areas, such as parts of Texas and Georgia, often require at least one off-street parking space per ADU. In some cases, municipalities mandate that if a garage is converted into an ADU, the homeowner must replace the lost parking space elsewhere on the property, which can present a challenge for smaller lots.

GOVERNMENT AND STATE INCENTIVE PROGRAMS. Many states and municipalities offer grants, tax credits, or low-interest loans to support ADU construction, which can

reduce reliance on traditional financing. For example, Washington state offers property tax exemptions for homeowners who rent ADUs to low-income tenants, subject to program requirements. In addition, Vermont provides 0% interest forgivable loans for ADU conversions in owner-occupied properties, provided the unit is rented at or below HUD Fair Market Rent for a compliance period.

ADU development isn’t a one-size-fits-all process. Homeowners must also navigate design considerations, material costs, and contractor selection, among many other factors, to ensure compliance with local building codes. Preapproved ADU plans—required by all California jurisdictions starting in 2025—are making design and permitting more streamlined. Prefabricated ADUs are also becoming an increasingly popular option, reducing construction timelines and costs while maintaining quality.

With regulations continuing to evolve, understanding state and local requirements is essential before moving forward with an ADU project as many of the above factors can significantly impact project feasibility, costs, approvals, and overall risk. For lenders, these variables play a critical role in assessing loan eligibility, structuring financing options, and mitigating potential risks associated with construction delays, budget overruns, or regulatory noncompliance.

BUILDING ADUS TAKES EXPERTISE

Although the benefits of ADUs are clear, financing has historically been less so. Traditionally, ADUs have been self-funded due to the lack of tailored financing options. As interest in ADUs grows and more lenders support their development, financing barriers are coming

Although the benefits of ADUs are clear, financing has historically been less so .”

down. This is making ADU construction more accessible and affordable while ensuring ADUs are built to higher quality standards with proper permitting.

Due diligence is a critical step in the ADU development process, ensuring that projects remain financially viable, legally compliant, and structurally sound. Before construction begins, a thorough project feasibility study helps homeowners and lenders assess whether a property can support an ADU based on zoning laws, lot size, setback requirements, etc. Additionally, due diligence should include contractor vetting. Due to the smaller nature of these projects, contractor risks are common because they often involve less sophisticated general contractors.

By addressing these factors up front and before closing on the project’s loan, lenders can better evaluate the borrower’s risk exposure. At the same time, homeowners can avoid unexpected regulatory and infrastructure challenges.

Beyond preconstruction planning, due diligence is essential in post-close monitoring—such as draw inspections and funds control—to keep ADU construction on schedule and ensure funds are used appropriately. For lenders, this level of oversight minimizes the risk of unfinished projects, contractor disputes, or cost escalations that could impact loan repayment. Homeowners also benefit from structured monitoring because it helps maintain construction quality and ensures adherence to regulatory requirements.

As ADUs gain traction as a mainstream housing solution, lenders have a unique opportunity to support this growing market. Understanding financing options, regulatory considerations, and construction risks is key to mitigating exposure and ensuring successful projects. With demand rising, those who adapt their lending strategies to include ADU-specific due diligence and financing solutions will be well-positioned to capitalize on this expanding sector.

Larry Manchester is director of construction services at Partner Residential Consultants, bringing over 30 years of experience in the construction risk management space. As an innovator and business owner, Manchester created the first nationwide construction draw assessment platform and earned the trust of many of the largest construction lenders in the country. During his career, Manchester has overseen more than 5,000 project feasibility studies and more than 100,000 real estate collateral examinations.

Stock Value Begins with Strategy

Investable enterprises require systems, capital strategy, and repeatable performance.

CHUCK REEVES, ASSET ACQUISITIONS, INC.

If you were buying your business today, what would you pay for it—and why? What systems, processes, and data would make you confident enough to write a big check? Or, what gaps would discourage you from taking the risk?

Building stock value isn’t a “someday” project. True stock value is what separates owning a valuable business asset and merely having a job. The lenders who master value creation

have access to capital, attract the best borrowers, and have exit options.

The stock value of your business is not in its revenue or even its profit; it’s in the lending platform you develop. Many residential transition loan (RTL) lenders are stuck on the transactional treadmill of closing deals, deploying capital, and collecting interest. These things keep you busy but, by themselves, they are not an asset you can sell or leverage.

Building stock requires deliberate strategy that prioritizes enterprise value over near-term gains. If your goal is to grow a company that builds stockholder wealth or that you can one day sell at a premium, you need a value creation strategy.

STOCK VALUE: YOUR GUIDING PRINCIPLE

If you—or your best salesperson— stopped originating loans tomorrow, what would your business be worth? Would it

command a strong valuation from a buyer or institutional partner? Or would it simply be a collection of quickly dwindling loans?

High-volume origination does not guarantee a valuable business. If you chase transactions without systems, brand strength, and capital relationships, you may grow bigger, but not necessarily be better. Size without scalability and structure is just more risk.

Stock value is what someone would pay for your company based on its ability to generate predictable, repeatable, and defensible cash flows into the future. It’s the asset you’re creating, not just the income you’re producing.

THE TRANSACTIONAL TREADMILL

The business leader on the transactional treadmill prioritizes revenue over systems.

Closing the next deal always seems more important than building systems. They have a sales pitch but not a lending strategy. They don’t know how, or if, they are adding to their business value. Their value engine is a person, not a system.

The business leader who prioritizes stock value takes a different approach. They collect and analyze data to make tactical decisions, strengthen brand positioning, and attract borrowers and investors. They develop systems that mitigate risk and ensure the business will continue to run smoothly even if the founder or top producers step away.

The way you answer some basic questions will reveal whether you are on the transactional treadmill or creating longterm stock value. Can you clearly explain how your business compounds value? Are your strategies aligned with long-

term exit goals or investor interest? Do you reinvest in systems, processes, and brand assets that create future value or are you only interested in short-term deal flow? The lenders who answer yes to these questions are the ones creating opportunities and options for the future.

THE PATH TO COMPOUNDING VALUE

A general rule for building profit is focus. Do one thing consistently well, supported by systems and processes rather than personalities. Then leverage those systems for expansion. Enterprise value comes from consistent revenue generation, scalable systems, and risk mitigation— not from originating the most loans.

You create value when your revenue is consistent and predictable, supported by a brand reputation and diversified

capital relationships. At the same time, your processes must be institutionalized so the business doesn’t depend on a few key people but instead runs smoothly no matter who is in place. And true value also depends on disciplined underwriting and data analysis that mitigate risk, paired with recovery systems strong enough to handle defaults when they occur.

These fundamentals are what command higher multiples from buyers and secure better terms from capital providers.

CAPITAL STRATEGY AND PORTFOLIO PERFORMANCE

Capital is the raw material of lending. If growth is your goal, you must focus on both capital supply and capital velocity— how many times you can redeploy the same capital in a year. Achieving this requires structure and transparency that inspires institutional confidence.

Capital providers want to see financial strength, underwriting criteria, default rates, cash flow, and servicing capability. Strong portfolio performance signals institutional-grade discipline. This means your credit policy and underwriting processes are systematic, not a role of the dice. Early warning systems should flag potential issues before they escalate.

Even with a solid recovery playbook, prevention is better than cure. The most valuable business comes from repeat borrowers who finish on time. Extensions and late fees are consolation prizes. They may provide short-term revenue; they don’t build goodwill or brand equity.

THE BORROWER FLYWHEEL

How narrowly have you defined your target borrower profile? Sales, marketing,

and underwriting should all share a clear picture of the borrower you serve best. A well-defined borrower profile reduces friction throughout the sales and servicing process and boosts margins.

When you know your borrower, you also know where to find them and what value proposition most appeals to them. Your programs and borrower experience should make it easy for them to return and hard for them to consider competitors.

Satisfied borrowers also create momentum by bringing in new clients. They will share their experiences, whether good or bad. Referral incentives may help, but they pale in comparison to the organic growth created by consistently providing value. You don’t buy business—you earn it.

OPERATIONAL SYSTEMS

Operations separate lenders who simply originate loans from those who build investable platforms. High-performing lenders treat underwriting, servicing, and risk management as revenue protection, not cost centers. Sales generate revenues, but operations guarantee profits.

Loan origination systems unify the entire loan cycle—sales, underwriting, and servicing. These systems generate data intelligence on borrower performance, capital velocity, and portfolio risk— data that protects margins and are key to building a supply of quality repeat borrowers. Moreover, solid operational systems reassure borrowers, who increasingly expect lenders to have infrastructure that can grow alongside them as they try to scale their business. High performing lenders also have investorgrade reporting so managers and capital partners know what’s happening and can make educated decisions and adjustments.

BRAND AND MARKET POSITIONING

To stand out to capital partners, investors, and acquirers, your lending platform must be bigger than the personalities in the business. A strong brand exudes trust, expertise, and consistency even as individual employees come and go.

Brand is more than logos and marketing. It is a proven strategy and approach to growing market share. Your brand should be the face of the business, not the charismatic sales guy or the marketing jingle. It’s not just neon lights to get the attention of those passing by—it’s a destination for serious borrowers.

If your lending platform is not the heart of the sales pitch, you have work to do. If the sales team is selling on price or fear factors, you have work to do. If you want to command premium pricing and repeat business, you must deliberately build a value proposition that promises more than fast, cheap money. A value proposition offers something your borrowers can’t get elsewhere. When your brand works, deals find you.

FROM GUT-DRIVEN DECISIONS TO OPERATIONALIZED VALUE

Value creation is not a slogan; it’s a system. Everyone from originators to operations should understand how their daily decisions contribute to the enterprise value.

You build this alignment by clarifying your value thesis so every team member knows how the company makes money and how their role contributes. Regular strategic audits help the team assess the model and ask what to do more of, less of, or differently. Data and metrics guide this process. Key performance indicators include repeat borrower ratios,

capital velocity, portfolio performance, delinquency and recovery rates, and average servicing cost per loan. Knowing this data directs decision-making and helps you focus time and money. Finally, build a system-driven operation where humans add value and tech handles repetition. Solid hiring, training, and system design—from CRM to loan origination and servicing—are all part of this tech-enabled execution.

TODAY’S LENDING, TOMORROW’S WEALTH

Building stock value is the blueprint for creating a business that attracts capital and commands a premium. It requires

more than closing loans. It demands institutionalizing processes, leveraging data, and aligning your operations with a value thesis that every team member understands.

When systems—not personalities—drive performance, you transform from a transactional shop into an investable platform. Lenders who embrace this mindset will have capital partners competing to fund them, repeat borrowers fueling predictable revenue, and the ability to scale without sacrificing control. Stock value is not about what you earn today but what your company is worth tomorrow. Start building that value now, and you’ll own more than a job.

Pay Only for What You Use.

Say goodbye to monthly fees for features you don’t use. With Sekady, you can now pay a low, per-draw and inspection fee and keep it simple.

Chuck Reeves is the general manager of Asset Acquisitions, Inc., where he leads the daily operations of three synergistic real estate businesses: Cityscape Properties, a high-volume house-flipping firm; Destination Properties, a property management firm; and Crossroads Investment Lending, a private lending firm.

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Diversify with DSCR Without Losing Control

Success comes from balancing bold expansion with disciplined safeguards.

ARTHUR BUDIMIR, CONSTRUCTIVE CAPITAL

In the game of business, the path to industry domination is shaped by how we handle risk—both good and bad. The strategy behind effective risk management often determines long-term success. In both conventional mortgage and private lending, long-term loans can create sustainable growth while minimizing unnecessary risk.

For most lenders and brokers who have avoided DSCR loans, hesitation is often due to fear of the unknown, which creates only the illusion of risk. In reality, diversification is less risky than it is scary. The real risk comes when you stay stagnant and do not diversify.

DIVERSIFYING INTO DSCR

If it is not already part of your portfolio, adding DSCR should help with diversification. Many traditional mortgage brokers rely on conventional mortgage loans as their core product. DSCR offers diversification by serving a different consumer—real estate investors. It also provides a less rate-sensitive product that should perform better in higherrate environment and likely increases repeat business, because investors often own multiple investment properties.

For those unfamiliar with DSCR products, education is essential—not only on underwriting guidelines and

loan performance but also on the capital requirements behind them. Unlike fixand-flip loans, which can often be balancesheeted or quickly sold to aggregators, DSCR loans typically require a different capital structure to sustain origination volume. Lenders exploring DSCR should evaluate whether to pursue balance-sheet lending with servicing income, work with secondary market aggregators, or partner with wholesale capital providers who specialize in long-term rental loans.

Identifying the right capital partner depends on a lender’s strategy. Some choose to retain servicing rights for longterm profitability, while others prioritize liquidity and faster execution through correspondent or wholesale arrangements. Beyond capital, operational hurdles such as training staff on DSCR underwriting, adapting compliance frameworks, and ensuring clean file submissions also play a role in successful adoption.

During the initial rollout phase, focus heavily on risk management. Riskier DSCR loans share several identifiable characteristics such as borrower inexperience, high leverage with lower FICO scores, or weak DSCR ratios. Growth should come not from funding these risky loans but from organically capturing entirely new investor clients or creating a refinance path for your existing

fix and flip (e.g., residential transition loan, or RTL) customers , especially if you are primarily a fix-and-flip lender or broker. DSCR loans create an almost natural refinance option for buy-and-hold investors who flip properties and want to retain the investment as a long-term rental property.

DSCR loans, by design, have become much less risky over time as pricing models have become more standardized. Typically, the minimum allowable ratio is 1.000 ratio, meaning that income of the property covers the expected monthly payment on the loan. For maximum leverages, a 1.2000 ratio is considered acceptable, and anything under a 1.000 ratio is only considered in certain circumstances by some niche lenders with stricter limits.

Adding DSCR to your lending menu is perhaps less risky than excluding it. It will avail you of access to a potentially new set of customers or at least to better retain existing customers who need to refinance their existing RTL loans.

MANAGE INTEREST RATE RISK

Another risk management consideration is interest rate volatility. Despite residential investor loans being less rate sensitive than primary residential conventional loans, rate swings still matter as you add DSCR

to your mix. Disburse capital through a measured-risk strategy such as forward commitments with your capital partners. A logical timeline on this would be somewhere in the range of 30-90 days—enough to give an investor a sense of a committed lock period but also giving you the flexibility to move with the market as it evolves.

The goal is not to predict the rate market, but to manage it. Whether a rate lock turns out favorably or not depends on what happens afterward, but consistency is the key. Pass that lock to your clients using an indexbased pricing model (the 5-year Treasury index as an example) so you maintain both flexibility and control. If rates drop, you can still take advantage of them. If rates rise, your forward commitments protect you. Over time, this balanced approach strengthens client trust and your reputation.

Measured risk-taking can be appropriate, but don’t confuse this with the endless bad risk that is out in the marketplace. Originating loans in a 7-8% DSCR market is not the same as a much lower 3.5% market: There is more manual intervention required, loans are more difficult, and file quality is often not as clean.

Investors are required to raise their rent more aggressively to maintain a strong DSCR calculation. The increased rent makes it more difficult for property investors to maintain repeat tenants, which creates a more challenging market. As a counterbalance, purchased properties must also deal with these higher interest rates too, increasing rent and making home purchases more expensive. In addition, with these higher costs, underwriting demands more diligent scrutiny.

Keep your calculated risks (one-time exceptions) at a specific target number or percentage. Perhaps something

in the range of 5%-15% is acceptable, depending on your risk tolerance.

INVEST BOLDLY IN TALENT

Talent recruitment is where bold risks pay off. When you bring on people who are knowledgeable of the industry, they tend to be measured in their risk management approach. You need critical thinkers that can make decisions efficiently.

Similar to more diligent underwriting, good recruitment is at a premium. Pursue top performers and be willing to invest more to secure them, knowing the return will be worth it. Prioritize lenders and capital partners with relationship-driven mindsets. Market aggressively to build a network of soft-skill brokers to reduce exposure to risky loans and clients. This allows you to keep internal operations lean while benefiting from external due diligence, lowering origination costs and allowing you to offer more competitive pricing.

Educate brokers about your target risk profiles so they understand which deals are acceptable and which must be declined. Client experience, client liquidity, and client debt performance (FICO) are the most important compensating factors to look at when determining a risk profile. Although final decisions may not always be yours, you do have discretion about how to deliver an answer.

Internally, transparency is critical. Share your pricing model so they understand the risks you are taking and the control you are retaining with it. Make sure the company’s blueprint, production, and expectations are transparent for every employee to see and manage. This reduces internal misalignment, strengthens company culture, and reinforces accountability. Be transparent with your communications,

Market aggressively to build a network of soft-skill brokers to reduce exposure to risky loans and clients.”

both internally as well as externally with recruitment. Hire people with a deep knowledge of the game and the rules, so they can properly examine risk in their day-to-day partnership with the rest of their peers and co-workers. Underwriters, loan officers, and loan processors will all interact with these files daily, so ideally, they already have the experience of pouring over hundreds, if not thousands, of these types of files on their resume.

RISK VS FRAUD

Finally, don’t confuse taking calculated risks with blatant and obvious fraud. Make sure to spot the bad actors and keep yourself far away from fraud to preserve your reputation as well as your most valuable capital partners. The underwriting department is key in this aspect, as they can see the whole “story” of a loan and request conditions for anything that seems incomplete or does not align with the story of a loan. An example would be recent title changes or huge transactions on a bank statement that are not common. Be willing to invest heavily in tools and AI that will target and identify fraud. This will be an ongoing battle that will continue as our private lending industry becomes more mainstream.

THE REAL WINNERS

In the end, the real winners in DSCR lending are not those who gamble recklessly, but those who treat risk as a disciplined strategy.

Be laser-focused on building, maintaining, and strengthening client relationships. By diversifying into DSCR, leveraging forward commitments to manage the rate market, investing boldly in talent, and fostering transparency with both clients and employees, lenders can transform risk from a liability into a competitive advantage.

ARTHUR BUDIMIR

Budimir is director of business development with Constructive Capital. He has held several titles in the industry since January 2020, all revolving around the advancement of broker advocacy.

Budimir serves on the AAPL Education Committee and is passionate about mentoring and educating private money brokers across the country. Leveraging his more than 10 years of experience in sales and management before entering real estate, he is now solely dedicated to forging and sustaining new relationships with like-minded lenders and brokers to accelerate the expansion of Constructive Capital as an industry leader.

Discipline Over Hype

In an environment where many race to brag about record deal counts and lightning-fast closings, discipline might seem like a buzzkill.

Brock VandenBerg, founder and CEO of private lending firm TaliMar Financial, wants discipline to be the buzz. In fact, VandenBerg is almost evangelical about the importance of maintaining underwriting guidelines. For him, lending guidelines aren’t guardrails—they’re the foundation for the slow, steady rise of TaliMar.

“If I were to look back on the loans that did not perform as expected, it’s because we decided to maybe push the guidelines for that specific borrower,” he said.

His conviction was forged deal by deal, challenge by challenge: closing down failing banks for the FDIC during the Great Recession, lending his own money

when banks wouldn’t, and scaling a private mortgage fund from scratch in one of the nation’s most competitive lending markets.

VandenBerg built his business on restraint—and that just might be the most radical move in private lending today.

Baptism by Collapse

VandenBerg’s private lending journey starts in 2008, the year the financial world imploded. While his peers were scrambling to hang on to their jobs, VandenBerg was quietly leaning into the chaos.

“The housing market had collapsed and there really wasn’t much opportunity

for residential bankers at the time. I happened to be at a networking event where I met up with an investor who was needing capital to acquire properties at bank sales. I just happened to have some of my own capital and lent it to them, not knowing there was really an industry behind it,” VandenBerg recalls.

The deal worked. It led to another and then another. Soon, he was syndicating loans with high-net-worth investors. In 2021, he launched the TaliMar Income Fund, formalizing the operation into a full-scale,

balance-sheet lender rooted in Southern California. His vision was, and still is, to offer investors a source of capital they can trust, while giving borrowers speed without sacrificing sound underwriting.

Today, TaliMar manages $115 million in investor capital, specializing in residential (roughly 80% of the portfolio) and, increasingly, in commercial and industrial projects. Commercial, residential, bridge, construction—it all lives under one roof, governed by strict underwriting and a crystal-clear risk-return philosophy.

The FDIC Files: Risk Management from the Inside

You can’t separate TaliMar’s ascent from its founder’s years in traditional finance. Before launching his fund, VandenBerg served at KeyBank and later at the FDIC, where he was tasked with closing down institutions and liquidating portfolios.

“I was very in front of the issues and the problems that these banks had, the errors they made in their underwriting, the loose lending guidelines,” he said.

I was very in front of the issues and the problems that these banks had, the errors they made in their underwriting, the loose lending guidelines.

The experience shaped Talimar’s underwriting approach. “It really gave me some insight...and I was able to take a lot of what I learned while at the FDIC and essentially apply it to running a mortgage fund.”

Yeses That Are Successes

VandenBerg might not swing a hammer, but he talks about financing rehab projects with an almost artistic appreciation. Spend five minutes talking to him and it becomes clear: This isn’t someone addicted to deal volume. He’s addicted to problem-solving.

“What drives me is finding the solutions for clients,” he said. “Every day a new loan scenario comes in that you just have never really thought about. Like, how are we going to solve this problem?”

In his world, the initial loan request is rarely the final structure.

“The loan request that normally comes in is not what is actually funded on the back end,” he said. “You’re working with your client to better understand what it is they’re looking to accomplish long-term.”

For example, one borrower lacked consistent cash flow, but the asset value was strong. “We were able to put a payment reserve together for that client.”

For VandenBerg, it’s about shaping a “yes” that will hold up rather than rubber-stamping approvals.

Two Functions, One Culture

Running a mortgage fund means running two businesses: the capital-raising side and the origination side. TaliMar’s strategy is to make them feel like one.

“The hurdle is to bring those two groups together so that they understand how one impacts the other,” he said.

Color?

Blue

Musical genre?

Rock or Country

Vacation getaway?

Hawaii

Season?

Summer

Business or leadership book?

Atomic Habits by James Clear

Sport or team?

Michigan football

Weekend activity?

Tennis

Guilty pleasure?

Black coffee at Starbucks at 5 in the morning

Every day a new loan scenario comes in that you just have never really thought about.

Like, how are we going to solve this problem?

The solution was company-wide pipeline meetings. Originators hear from servicing about performance issues; servicing hears from originators about structuring; investor relations gets current market intelligence straight from the source.

The goal is to create shared accountability and to emphasize real-time education. The result is a culture where departments don’t protect turf; they work together towards successful outcomes.

One example: ADU construction loans. TaliMar’s servicing team tracks construction progress, then informs originators when it’s time to shift to a lease-up bridge loan.

“They work in collaboration...so the originator can reach back out to that borrower, and when it comes time to refinance that loan into more of a bridge

loan structure from a construction loan, they can do that,” VandenBerg explains.

Slow, Steady … and Still Standing

“I’ll be the first to admit that I was very slow in getting to where I am today,” VandenBerg said. “There are a lot of other companies that came out of the gate strong. … But I just every day kind of pushed the envelope a little more.”

That steady push made the fund launch even more significant.

“It was very expensive to launch it… I didn’t know if my investors were going to follow me,” he said. “I had a lot of second guessing when I wrote the check, when we launched the fund, when I accepted my first dollar.”

But they did follow. Many of the same investors from VandenBerg’s trust-deed

days have helped him scale TaliMar into a diversified powerhouse in a private lending industry that is booming.

The industry growth only makes VandenBerg more conservative. He emphasizes that when there’s a flood of capital, investors need to stick to their underwriting guidelines more than ever.

“That’s what’s going to put you in a good position should the market change,” he often reminds his team.

“It’s what has allowed us to operate for over 15 years with minimal issues.”

The Southern California Advantage

There’s another key reason TaliMar has managed to avoid the fate that’s taken down some lenders: They know their backyard and don’t chase volume across

unfamiliar terrain. It’s another layer of discipline baked into the operation.

“We stay primarily focused on lending in the Southern California market because we understand it,” he said. … “You just do not have enough housing here for the amount of people looking. And the regulations are so burdensome, you’re not going to see an oversupply.”

Operational Discipline

At TaliMar, technology and outsourcing, like the lending guidelines, are intentional parts of VandenBerg’s disciplined approach.

VandenBerg is open to technology— but on his own terms.

“There’s a new software app that comes out every single day,” he said. “We’ve developed in-house software over the last 10 years that’s built around our own processes. It allows us to efficiently manage our loan portfolio and investor capital and the flow through our pipeline. … The best benefit is you can build it around your own processes versus trying to force somebody else’s product into yours.”

He’s equally pragmatic about outsourcing. Fund administration and loan servicing are handled externally, “so we can stay focused on what we really specialize in,” VandenBerg said.

Influence— Without the Ego

Entrepreneurship wasn’t in VandenBerg’s DNA—but it was in his orbit.

“I was around a lot of people who were entrepreneurs, not only in real estate but outside of real estate. And so it’s funny, a lot of them are investors with me today,” he said.

What did surprise him was how far he’d go. “I never thought I would hire anybody and then launch a fund and build a team,” he admits.

Asked about his influence, he paused. “I don’t know if I could pinpoint a time I realized I was an influence on people,” he says. “But I walk out into the pit where all the employees are working and none of this existed. It was just me and my director of operations, and now we’ve

This or That

City skyline or wide open spaces?

Tablet or physical book?

Appetizer or dessert?

Coffee or tea?

Text or email?

Home-cooked meal or takeout?

(As long as I’m not cooking)

Night owl or early bird?

Read or play a game?

Dog or cat?

You have to be looking at your vision in the long term—your ability to survive through the ups and downs of the industry.

got a team of 12 people that are playing a vital role in the growth of the company.”

His biggest turning point? When his team started challenging his ideas—and being right.

“They’re coming back to me saying, ‘No, wrong. A better process is to do this,’” he said. “That was a moment I realized they know more about some parts of my company than I do.”

Stick to the Discipline

With $115 million under management, a growing footprint in commercial lending, and a team that thinks like owners, TaliMar could be forgiven for taking more risk. But it’s not part of the plan.

“There’s a lot of investor capital coming out right now. And it’s easy to say, ‘Okay, we’re going to kind of push the envelope to win a loan or to win that borrower, to win that transaction,” VandenBerg said. “But you have to be looking at your vision in the long term—your ability to survive through the ups and downs of the industry.”

TaliMar Financial is private lending without the swagger, without the noise, without the overpromises. It’s what happens when someone builds quietly, thinks critically, and doesn’t apologize for going slow to go far.

Because hype fades. But discipline endures.

TaliMar At A Glance

Founded 2008

Fund Launch 2021

Capital Under Management $115 million

Primary Market

Southern California

Portfolio Mix ~80% residential, 20% commercial/industrial

Core Values Transparency, disciplined underwriting, long term vision

Standout Deal $3 million industrial refinance with payment reserve structure

Technology

Proprietary in-house loan management software

Team Size 12

Guiding Principle

Discipline

Fortra Law is a full-service law firm and conference line specializing in the private lending industry.

CORPORATE & SECURITIES

• Securities Offerings and Compliance

• Entity Formation and Governance

• Corporate Transactions and Combinations

• Mortgage Licensing for Private Lenders

• Experts in Fund Formation, Including Syndications, Crowdfunding, Real Estate Funds, and Debt Funds

BANKING & FINANCE

• Nationwide Loan Document Preparation

• Foreclosure and Loss Mitigation

• Nationwide Lending Compliance

• Capital Markets Agreements and Negotiation

LITIGATION & BANKRUPTCY

• Defense of Claims from Borrowers

• Foreclosure Related Litigation

• General Business Litigation (Partnership, Investor, and Vendor Disputes)

• Creditor Representation in Bankruptcy

• Mortgage Loan Litigation

• Collection Actions

• Replevin

• Receivership

• 1079 Litigation

FORTRA CONFERENCES: PREMIER EVENTS

• Insights Into Private Lending and Market Trends

• Networking, Education, and Deal-Making Opportunities

LENDER LOUNGE: INDUSTRY PODCAST

• Insights Into Private Lending and Industry Leaders

• Expert Interviews with Industry Leaders

• Explore What Drives Successful Companies

• Inspiring Stories and Insights

WESTERN LAWMAN: LEGAL SERIES

• Legal Insights on Media and Culture

• Analyzing Law in Current Events and Entertainment

• Informative Discussions and Expert Commentary

Hiring Only Hurts When You Wait

Lenders that hire leadership early scale faster and avoid costly breakdowns.

PHILIP FEIGENBAUM, HUFFMAN ASSOCIATES LLC

Your ability to scale depends on how strong your team is—not just today, but six months from now. Too many firms wait until they face acute challenges before hiring leaders. By the time you’re desperate, the damage has already been done: Production stalls, operational bottlenecks occur, or investor trust erodes.

Hiring ahead of the curve is not a luxury; it’s the difference between a lender that scales and one that stagnates. Waiting to fill key roles, such as credit leadership, servicing oversight, or financial operations doesn’t save payroll. It costs you 10 times more in missed revenue, broken processes, and damaged relationships.

THE COST OF DELAYED DECISIONS

Many lenders think they’re “operating lean” by waiting to hire. What they’re really doing is deferring costs that show up later in bigger, harder-to-fix ways. By the time they do hire, they often rush the process, settling for “good enough” candidates instead of the right fit. Misaligned hires stall growth and create turnover that compounds problems and increases costs.

Clients and investors notice inefficiencies faster than you may think. A single missed closing, delayed draw, or remittance error can send red flags. In a business built on confidence, reputations don’t bounce

back easily. Even a single operational stumble can resurface months later when you’re asking for more capacity or better terms, quietly costing you millions in opportunities you never knew you lost.

THE RISK OF STRETCH PROMOTIONS

A common shortcut is promoting mid-level performers into executive roles before they’re ready. It seems logical on paper. They know your loans, they’re loyal, and it’s cheaper than recruiting externally. But leadership is its own skill set. Running a pipeline isn’t the same as setting credit strategy, building investor confidence, or managing through market cycles.

We worked with a lender who promoted the wrong person to lead a construction management team. Within months, the new leader was micromanaging files instead of managing risk and client service around the draw process. Turn times slowed, investor trust slipped, and the team burned out. Eventually, the firm had to recruit externally—after losing clients, employees, and credibility. Promoting the wrong leader proved more costly than making the right hire from the start.

Don’t hire for who might be right someday. Hire for who can lead today.

BUILDING FROM THE TOP DOWN

In private lending, urgent needs always arise—an underwriter leaves, production spikes, or a new product line is added. If you only hire in reaction to vacancies, you’re already behind. By the time the need is obvious, you’re filling from a position of weakness and asking leaders to build the airplane while flying it.

ARE YOU BEHIND THE CURVE ON LEADERSHIP?

Use this quick self-assessment to identify whether your private lending business is running lean in a healthy way, or if you’re at risk of breaking under growth pressure.

Credit Leadership

» Do you have no one setting credit policy or monitoring portfolio risk?

» Are exception approvals inconsistent depending on who touches the file?

» Do investors ever push back on loan quality, reporting, or repurchase risk?

Sales Leadership

» Is production growth dependent on a handful of high-performing loan officers rather than a system for recruiting, training, and scaling?

» Does your sales culture vary significantly by region, channel, or team?

» Are you missing a structured training and recruiting pipeline for new loan officers or account executives?

Capital Markets

» Are you selling loans without a defined capital markets strategy?

» Do you rely on one or two outlets instead of a diversified set of buyers, warehouse lines, or securitization strategies?

» Is liquidity management reactive instead of planned 3–6 months out?

Operations and Scalability

» Are operations teams always “catching up” to production?

» Do you lack a dedicated leader responsible for improving turnaround times, quality control, and vendor relationships?

» Is technology adoption piecemeal, with no one person accountable for long-term system strategy?

Investor Confidence

» Have you ever lost a warehouse line, capital partner, or large investor due to concerns about execution?

» Are you worried about how your story would hold up under due diligence if you doubled production tomorrow?

» Do you rely on credibility at the executive level but don’t have the middle leadership to back it up?

How to Score Yourself

» 0–2 “yes” answers: You’re operating lean, but not yet at risk. Stay vigilant and start long-term organizational planning.

» 3–5 “yes” answers: You’re at an inflection point. Growth without new leadership could expose cracks in the next 6–12 months.

» 6+ “yes” answers: You’re already behind the curve. Start prioritizing strategic leadership hires.

Sustainable growth requires hiring as part of corporate strategy, not just a back-office function. Sometimes, you need to slow down to speed up: putting the right leadership in place first so they can design systems, hire the right people, and own outcomes. Growing faster than leadership can handle creates operational pressure—in operations, credit, and servicing—until the entire platform starts to crack. What feels like momentum on the front end often turns into drag if the foundation isn’t there. The cost isn’t just operational stress; it’s missed deals, strained relationships, and a reputation for being unable to execute at scale.

The solution is hiring from the top down. True leaders are process owners, not just doers. Mid-level managers can keep files moving; leaders create systems that scale. When you give them ownership and authority to hire, train, and build infrastructure, they don’t just withstand growth—they accelerate it.

One client recognized this early. They were originating loans, building market share, and closing deals, but they lacked leadership in credit, sales, and capital markets. Instead of chasing more volume, they paused to recruit top leaders. By positioning these as “build” roles, they attracted candidates excited to shape strategy instead of patching problems. That decision stabilized their platform and set the stage for long-term growth.

If they had waited six months to a year, it might have been a very different story—a messy turnaround instead of a clean build. By being proactive, they not only stabilized the business but also attracted higher-caliber candidates who were drawn to the chance to create, not just repair. That message conveyed a great deal about the kind of

leaders they were bringing in and the kind of future they were building.

INVESTOR CONFIDENCE STARTS WITH LEADERSHIP

Strong leadership does more than run operations—it builds trust with whole loan buyers, securitization partners, and warehouse lenders. The right hires prevent gaps, shorten turn times, reduce delinquency, and free production capacity. Early hires give you space to be selective and signal stability to investors.

Every private lender tracks ROI on deals. You should do the same with people. If the right leader shortens turn times by even two days, how much production does that free up? If a servicing head reduces delinquency roll rates by 5%, what’s the impact on your P&L?

The actual cost of hiring late isn’t just scrambling to fill a role. It’s the opportunity you miss by not having the right leadership in place. Early hires give you breathing room to be selective. They let you focus on leaders who can design systems, scale teams, and grow investor confidence, instead of simply plugging holes.

Here’s another hidden ROI: Clients and investors notice stability. A single missed closing or delayed draw can ripple through relationships and trigger uncomfortable questions. When you build capacity in advance, you avoid those costly mistakes and project organizational strength. Leaders hired early don’t just manage today’s pipeline; they give you the flexibility to pivot to new products, scale responsibly, and seize opportunities before your competitors do.

Hiring should never be about filling seats. It’s about anticipating where your

business will grow, where it could break, and solving it before the cracks appear.

In private lending, the firms that scale don’t wait until they’re desperate. They hire leaders ahead of the curve—people who design systems, build teams, and give investors confidence that the platform can handle what’s next. Opportunity moves fast. If you’re not ready when it arrives, someone else will be. Hire early, build right, stay ahead.

PHILIP FEIGENBAUM

is the senior vice president at Huffman Associates LLC, specializing in executive search for the banking and private lending sectors. With more than 21 years at Huffman, Feigenbaum has excelled in leading high-level search projects, particularly in director, managing director, and C-suite placements, demonstrating a profound understanding of client needs and industry demands. He has expertly managed teams executing comprehensive search assignments across mortgage banking, consumer lending, private lending, and traditional banking.

Feigenbaum has a bachelor’s degree in political science from Roanoke College and resides in Richmond, Virginia, where he continues to lead with a strong commitment to performance and results.

Remote Borrowers Can Burn Lenders

A series of small loans for out-of-state properties exposed underwriting flaws and a sophisticated fraud scheme.

SUSAN NAFTULIN, REHAB FINANCIAL GROUP

In early 2023, we closed six loans with a new borrower. Although it was unusual for us to fund multiple loans for a single borrower without a prior history with us, the deals appeared low risk. The loans were relatively small, and the borrower was highly qualified: a real estate professional with a credit score above 750 and $2 million in cash.

Four loans closed in January and two in March. The borrower lived and worked in real estate in Massachusetts, but the properties were in Indiana. He explained the out-of-state activity by saying he was introduced to a successful real estate group in Indianapolis that helped him find, purchase, and rehab the properties. He claimed to have already completed a few successful projects with the group.

At first, everything seemed fine. The transactions closed and the borrower made the monthly payments. But no rehab draws were ever requested on any of the properties.

In November 2023, the borrower defaulted. He told RFG he had been scammed by the Indianapolis group, had taken loans from multiple private lenders, lost all his money, and no longer had any funds to pay the loans.

Through his attorney, he offered deeds in lieu of foreclosure in exchange for complete release of liability—an offer RFG declined. The potential losses would likely be significant, title issues were unresolved, and subordinate liens still needed to be cleared.

RFG filed claims with the title company named in the Closing Protection Letters, but the claims were denied. It turns out that the title agency that closed the loans was part of the scam. The CPLs were fraudulent—issued in the name of an insurer that had previously rescinded the title agency’s authority. No legitimate title policies had been issued by that insurer. With no insurance protection, foreclosure was necessary to clear title.

Indiana counsel began foreclosure proceedings, but in the meantime, the offending title agency closed its doors. After some sleuthing, RFG located the agency employee who had closed the transactions and was now working elsewhere in the title industry. After some choice words, the employee miraculously produced title policies—this time from a completely different title insurer–and began working to resolve the title issues. It appears the threat of legal involvement was very motivating.

Meanwhile, RFG began speaking to other local clients about buying the six properties. The borrower agreed to sell them and give all proceeds to RFG. Once title issues were resolved, RFG was convinced the borrower had no ability to pay and agreed to release the borrower from future liability in exchange for signing all the sale documents.

In the end, RFG minimized its losses by lending to the buyer of the properties. Although the properties were worth less than the loan payoffs, the new loan’s interest and fees helped offset most of the losses from the sale. Even so, the underwriting failures were clear—and the underwriter at issue is no longer with RFG.

UNDERWRITING FAILURES

Both the borrower and RFG were victims of very sophisticated scammers. But the truth is, RFG did a poor job in underwriting these loans. Holes in RFG’s underwriting policies were compounded by the underwriter’s failure to follow existing underwriting guidelines, leaving RFG exposed.

No one questioned who the borrower’s partners were. A Google search for the Indianapolis group would have revealed some ugly facts. Further, no one questioned how the borrower met them, what their involvement was, etc.

The most glaring errors were made with the titles. These properties were all repeatedly flipped between entities owned and controlled by the members of the group the borrower was aligning with, leading to artificially inflated values. The borrower overpaid his “team” for all the properties and was then left holding notes far in excess of the value of the collateral. The title commitment for one of the

RFG properties shows three transfers of the property in the four years preceding the loan. It is still unknown whether the appraiser was involved in the scam or not.

Other than overlooking the chain of title, no one at RFG noticed that the title commitments lacked the name of a title insurer, which is highly unusual. Further, the commitments were not properly marked up to reflect exceptions and removals from Schedule B, Part II. The requirement for marked up title is found in RFG’s lending guidelines, but the safeguard was ignored.

Further, the settlement sheets for the loans do not reference a title insurer. Instead, it refers to “Owner’s Title Insurance” and “Lender’s Title Insurance.” The name of an insurer should be there, not the generic name. This is another point in RFG’s guidelines that was overlooked.

The biggest error, however, was in not knowing where RFG was sending its money. RFG’s policy has always been to call the underwriting insurance carrier before sending a wire to confirm that the agency receiving the funds is an authorized agency. For unknown reasons, this was not done on these loans. RFG wired money to a title agency that was not authorized to receive it and not authorized to provide a CPL or a title policy. If that check had not been ignored, it is highly likely these loans would not have closed. Further, without title insurance, there was no carrier to make an insurance claim against for the encumbered title, making the foreclosure more extensive and expensive.

AFTERMATH AND LESSONS LEARNED

RFG has filed complaints with local Indiana law enforcement, the FBI, and

the Indiana Department of Insurance, which is dealing with other claims against the title company. Unfortunately, as in other cases where RFG has made criminal complaints, law enforcement has not shown any interest in investigating and pursuing the matter.

This experience reinforced several painful but critical lessons:

» NEVER SKIP UNDERWRITING SAFEGUARDS, EVEN FOR BORROWERS WHO LOOK STRONG ON PAPER.

» ALWAYS VERIFY THE AUTHORITY OF ANY TITLE AGENT BEFORE WIRING FUNDS.

» TREAT REMOTE BORROWERS, PARTICULARLY THOSE WORKING WITH UNFAMILIAR PARTNERS IN DISTANT MARKETS, WITH MORE SCRUTINY.

Fraud in private lending often hides in the details. And in this case, overlooking some of them cost RFG and the borrower time and money.

Susan Naftulin is co-founder of Rehab Financial Group, LP, currently holding the title of president and managing member. Before forming RFG, Naftulin held several senior management positions in the mortgage industry, including general counsel, managing attorney, chief operating officer, and senior vice president for both privately and publicly held mortgage lenders.

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The Undead Threat

“Zombie liens” can jeopardize private lending and property transactions.

LINDSEY WILLIAMS, TERNUS LENDING

Everything about the Brazos County, Texas, deal just south of Austin looked solid. The borrower had purchased a single-family home, secured financing through Ternus, completed renovations on time, and found a buyer within the target window. The title had been cleared when the borrower acquired the property. Closing on the sale for the new buyer should have been routine.

Instead, days before the resale, something long thought buried came back to life. A title review exposed that an old lien had resurfaced well after it was supposed to be gone. And to make matters worse, it

had already triggered a foreclosure, and the property had been sold at auction.

A TITLE THAT DIDN’T STAY BURIED

The lien dated to 2020, stemming from a home equity loan tied to a prior owner. In 2022, the lien had been rescinded under Texas law because the lender failed to collect within the allowed timeframe. With the debt no longer legally enforceable, the lien vanished from the title. That should have been the end of it.

But as the resale neared closing, the title review exposed that the lien had resurfaced.

The ensuing foreclosure and auction took place without the borrower, Ternus, or the title company ever receiving notice that the dead debt had come back to life.

The judge’s ruling, however, had not yet been recorded in county property records. That small technicality gave us one final chance to intervene before the foreclosure was final.

HOW ZOMBIE LIENS RESURFACE

Zombie liens often emerge from the same set of conditions. When markets slow, nonperforming debts are bundled and

sold in bulk to investors. These asset pools may include liens that were satisfied, rescinded, or unenforceable. Without property-by-property due diligence, these dead debts reenter circulation and sometimes resurface as foreclosure claims.

Court backlogs and inconsistent recordkeeping only make the problem worse. A lien that should be long dead can be revived if an investor acts on faulty information or ignores its rescinded status. That is what happened here: A lien that had no legal force still became the basis for a foreclosure proceeding.

ACTING FAST

Our borrower deserves credit for acting quickly. A relatively new but experienced investor, he owned other investment properties and had worked with us before. Once he realized a foreclosure had already occurred on the home he was preparing to sell, he immediately notified the county and the title company and called us at Ternus.

We filed a title claim that same day with Old Republic Title Company, which had issued the title policy. We explained the issue, which was definitely a title issue, noted that we had title insurance, and asked them to cover the situation.

Old Republic responded without hesitation. They retained Texas counsel and secured a temporary restraining order to stop the foreclosure from being recorded. Because the foreclosure had not yet entered the county property records, the TRO kept the flawed ruling from becoming permanent and preserved our ability to challenge the action in court.

Speed made all the difference. Once a foreclosure is recorded, legal remedies become far more limited and time-consuming.

WHAT WAS AT STAKE

Unfortunately, the borrower stood to lose his entire investment. He had purchased

the property, completed the renovation on schedule, and lined up a buyer. All of that would have vanished if the foreclosure had been recorded. The pending sale would have been lost, leaving him with no way to repay his loan with us.

For Ternus, repayment was tied to that sale. If it failed, the borrower would have been in default, and as a foreclosed first lienholder, our only option for recovery would have been litigation.. Even with title insurance, litigation can drag on for eight or nine months, tying up capital and creating uncertainty for everyone involved. In this instance, the property was purchased at auction by a lawyer who understood the circumstances and was cooperative. Other buyers may have refused to unwind the transaction, insisting their title was clear, making recovery harder.

WHY TITLE QUALITY COUNTS

This experience underscored something we remind borrowers of often: The quality of the title company matters. Borrowers

sometimes want to use smaller agencies because they offer quick and inexpensive closings. That may work out fine when everything is straightforward. But when a complex issue arises, these agencies often lack the resources and expertise to respond.

In our case, Old Republic’s size, reputation, and capacity mattered. They had the clout and relationships to bring in legal counsel immediately and the knowledge to file a restraining order before the foreclosure entered the county records. A smaller, less-equipped firm might not have known where to start.

INDUSTRY IMPLICATIONS

Zombie liens are not flukes. They tend to reappear in clusters during downturns when distressed debts are sold without careful review. Although comprehensive data specific to private lending is limited, regulatory agencies have recognized zombie liens as a growing threat.

In 2023, the Consumer Financial Protection Bureau (CFPB) issued guidance warning that collectors attempting to foreclose on time-barred mortgages—essentially zombie liens—may be in violation of the Fair Debt Collection Practices Act. The agency noted that these liens disproportionately affect borrowers of color, older homeowners, and those with lower incomes. Although their focus was primarily on consumer second mortgages, the lesson for private lenders is clear: Liens thought to be dead can still come back, and when they do, the fallout can be severe.

More recently, California AB 130, targeting “zombie mortgages,” became effective July 1, 2025. The law adds Civil Code § 2924.13, requiring servicers to certify under penalty of perjury that no “unlawful practices” occurred before initiating or threatening

foreclosure. Prohibited practices include failing to communicate in writing for three years, not sending required servicing or ownership transfer notices, threatening foreclosure after issuing a discharge notice, missing required statements, or acting after the statute of limitations. The servicer must also send borrowers the certification and a notice of their right to petition court. If a petition is filed, foreclosure is paused until the court decides. AB 130 closes loopholes that allowed zombie second liens to reemerge.

WHERE THE CASE STANDS

At an August 8, 2025, hearing, the purchaser of the property in “foreclosure” argued the bona fide purchaser defense. This defense claims the buyer acquired the property in good faith, paid a fair price, and had no knowledge of defects in the foreclosure. Courts generally view this defense as a strong protection of innocent buyers.

Rather than proceed to a lengthy trial, Ternus and Old Republic decided to pursue settlement. That strategy ensures a faster and more certain resolution. The property will be returned to the borrower free and clear of liens, allowing him to complete his sale as originally intended. Once the sale closes, our loan will be repaid in full.

The outcome is favorable, but not without cost. Time was lost. All parties incurred legal fees. Stress and uncertainty lingered for weeks. All of this unfolded even though everyone involved followed the rules.

LESSONS LEARNED

Everyone involved in the deal did everything “right.” The borrower bought the property, secured financing, completed renovations, and found a buyer. Ternus funded the loan and monitored performance. Old

Republic cleared title at acquisition. Yet the transaction nearly collapsed because an old lien, thought to be dead, returned.

The difference was how quickly everyone reacted. The borrower reported the issue immediately. We filed a claim without delay. Old Republic secured a restraining order quickly. That chain of action prevented the foreclosure from being recorded and gave us leverage to resolve the case through settlement.

Zombie liens will continue to lurk as long as property debt can be bundled, sold, and reintroduced into the system without full due diligence. The recording and tracking systems are imperfect. The best defense remains the same: vigilance, diligence, strong title partners, and the discipline to act without hesitation the moment a problem surfaces.

LINDSEY WILLIAMS

Lindsey Williams serves as general counsel for Ternus, Inc. She has nearly 20 years of comprehensive experience in legal, finance, and compliance across the residential and commercial lending sectors. Her expertise encompasses negotiating and managing complex tax credit transactions and private equity funds. This extensive background encompasses work experiences ranging from startup environments to Fortune 500 corporations, including JPMorgan Chase and Wells Fargo Bank.

Accounting for Securitizations

Private lenders can scale with securitizations when consolidation, control and valuation are handled correctly.

CHAD MURPHY, RICHIE MAY

If you are looking to capitalize on loan securitizations, you are not alone. Securitizations are increasingly popular because they allow private lenders to grow efficiently, increase liquidity, and tap broader capital markets. The mechanism is straightforward in concept. You pool loans and sell them through special-purpose entities (SPEs) to mitigate risk or achieve liquidity. Despite the advantages, the accounting rules concerning securitizations are far from straightforward, and getting them wrong can have consequences on the perception of your business performance.

This article explains key accounting issues that arise when private-label mortgage securitizations move from planning to execution and then to financial reporting. The goal is to help you avoid surprises and present results that hold up in audits and with investors.

WHO IS A CANDIDATE FOR SECURITIZATION?

Many private lenders think securitization is reserved for larger institutions. Scale and operational maturity are important, but the threshold is often lower than you might expect. A lender with a growing and repeatable origination model becomes

a candidate when traditional funding sources begin to constrain volume.

Reaching warehouse limits consistently is a clear sign that a longer-term funding solution may be appropriate. Demonstrated repeatability in loan originations and stable portfolio performance also indicate readiness. As a practical matter, lenders may start to consider securitization once they consistently originate and aggregate pools of 75 to 100 loans totaling around $75 million to $100 million or more. Larger and more diversified pools are generally more attractive to investors and rating agencies.

Publicly visible deals tend to be bigger, often $150 million to $200 million or more, because structuring and issuance costs are meaningful. However, smaller lenders can still achieve securitizations if structured properly.

The all-in cost to bring a securitization deal from start to finish can be significant, ranging from $250,000 to more than $1,000,000 depending on the complexity of the transaction and the size of the deal. Expect legal, underwriting, trustee, rating agency, and accounting fees to dominate the budget. The economics of the transaction should address these costs explicitly in advance so there are no surprises.

WHAT IS A SECURITIZATION?

In simple terms, securitization is the process of transferring a defined pool of loans into an SPE that issues securities to investors. The securities are backed by the cash flow generated from the underlying loans. Depending on the structure of the transaction, you might retain a portion of the securities, act as the servicer, or hold certain residual or control rights.

From an accounting perspective, the key question is: Did you truly sell the loans or are you still on the hook for them?

WHY LENDERS CHOOSE TO SECURITIZE

Securitization is a powerful tool that can release capital and help lenders recycle funds. Selling pools of loans generates fresh capital and enable you to originate more loans and pay down short-term funding facilities. When structured as a true sale, credit risk migrates away from the transferor, which can diversify and mitigate loss exposure. Access to capital markets can also broaden the investor base and, in some cases, offer more competitive rates than traditional funding avenues.

START WITH THE VIE ASSESSMENT

Before diving into whether the securitization meets sales criteria under ASC 860, confirm whether the SPE is a variable interest entity (VIE) and whether you are its primary beneficiary. If you’re required to consolidate the SPE as a VIE, then the sale accounting becomes a moot point because the assets and liabilities of the entity stay on your balance sheet.

Generally, all securitization SPEs qualify as VIEs because the equity at risk isn’t substantial or because equity holders

lack meaningful decision-making power. If the equity investors cannot effectively control the entity or do not have sufficient skin in the game, then it is likely a VIE. You are generally regarded as the primary beneficiary if you have both the power to direct the activities of the SPE that most significantly impact the SPE’s economic performance and you have exposure to benefits or losses that could be significant.

The bottom line is simple. Even if you think the loans have been sold, consolidation rules may require you to retain them on your books. It’s a matter of who controls and benefits from the entity. Only after concluding that the SPE does not require consolidation should you proceed to the sale accounting assessment.

THE SALE ACCOUNTING TEST UNDER ASC 860

A transfer qualifies as a true sale under U.S. GAAP only if all three conditions in ASC 860 are met. First, the transferred assets must be legally isolated from the company, even in the event of bankruptcy. Second, the buyer (or SPE investors) must be free to pledge or sell its interests in the transferred assets. If their hands are tied, it’s not a true sale. Third, you must not retain effective control over the transferred assets. This is where things get tricky, and any ongoing influence can break the sale.

If the structure allows you to remove assets after the sale, or to reclaim the loans after certain conditions are met, you may fail the control test, even if the SPE is bankruptcy-remote. If you can effectively get them back, did you actually sell them?

If you are unable to satisfy these conditions, the loans will remain on your balance sheet, and the proceeds received will be accounted

If you are unable to satisfy these conditions, the loans will remain on your balance sheet, and the proceeds received will be accounted for as secured borrowing, rather than as revenue. In other words, no gain is recognized on the ‘sale.’”

for as secured borrowing, rather than as revenue. In other words, no gain is recognized on the “sale.”

VALUING RETAINED INTEREST

Assuming your structure qualifies for sale accounting and you retain an interest in the securitization, the interest becomes a new asset on your books and must be initially measured at fair value. Retained interest may include residual equity, interest-only strips (the right to future interest-only payments), excess spread (the remaining interest income after paying investors and expenses) and subordinated tranches (the most junior, first-loss pieces).

Typically, you will need to value this asset using a discounted cash flow (DCF) model. The critical inputs for these models include expected loan performance, including prepayment speeds, default rates, and loss severity, as well as discount rates and relevant market assumptions.

It is important to note that even small changes to your default rate and prepayment speed assumptions can

significantly impact fair value. Make sure your assumptions are supportable and well-documented because they will be a focus of audit scrutiny.

At initial recognition, you must choose between the fair value option, which sends changes in value directly through income, and although this gives a clearer picture of the value of your retained interest, it brings volatility to your income statement. amortized cost with impairment, which can reduce income statement volatility. This election must be made at initial recognition and disclosed in your financials. Once FVO is elected, you are unable to revert to amortized cost.

If you consolidate the SPE under the VIE rules, the entire securitization structure, as well as the retained interest, gets incorporated into the financial statements. Likewise, if the transaction fails sale accounting under ASC 860, the loans are not derecognized from your balance sheet. In both situations, the original accounting election for those loans (FVO or amortized cost) will continue. There is no opportunity

to reset the accounting just because the loans were placed into an SPE.

WHEN SECURITIZATIONS GET TRICKY

Securitizations often run into accounting issues not because of the high-level concepts, but because of the specific, granular details of the deals. The most common problems arise from how you structure your servicing arrangements and what interest you retain. These are the factors that can cause you to fail the critical tests for consolidation and sale accounting.

CONTROL AND RETAINED INTEREST VALUATION CONSIDERATIONS. Valuing nontraded retained

interests is highly model-dependent. If internal models are too optimistic on prepayment or default assumptions, the initial fair value can be overstated and future write-downs can create a significant adjustment to income. If the retained interest is large enough to give you a significant portion of the SPE’s profits and losses, the structure will likely draw scrutiny under the economic interest component of the VIE test.

SERVICING ARRANGEMENTS:

THE “CONTROL” CONUNDRUM. As the servicer, you naturally have power to control the loans. If you are the only party with meaningful control, or if control is concentrated with you, that meets the “power” element

of the primary beneficiary test.

Sale accounting introduces a separate control question. Even if the VIE rules do not lead to consolidation, the servicing contract may still prevent sale accounting. That occurs when the servicer or originator retains rights that allow ongoing influence over the transferred assets.

If you can unilaterally modify loan terms in a way that significantly impacts the economics for investors, it suggests that control is retained. Further, if you can, at your sole discretion, repurchase loans beyond standard representations and warranties, sale accounting is not met.

These are the areas where the structuring and documentation must be meticulously crafted to achieve the desired accounting treatment.

COMMON REASONS SALE ACCOUNTING FAILS GAAP TREATMENT

MOST COMMON REASONS SALE ACCOUNTING FAILS (ASC 860). A transfer fails when you retain effective control through repurchase rights or substitution rights beyond standard representations and warranties. A failure of legal isolation—because the transfer is not perfected or the SPE is not truly bankruptcy-remote—also defeats sale treatment. If investors can’t freely pledge or exchange their interests, the test is not met. Finally, the absence of a true sale opinion from legal counsel often indicates underlying structural weakness that will not pass an audit review.

MOST COMMON REASONS THE SPE MUST BE CONSOLIDATED (ASC 810). Consolidation is typically required when the sponsor controls critical functions such as loan servicing, modification or default decisions, whether performed directly or through a sub-servicer under the sponsor’s direction. Consolidation also arises when the sponsor retains firstloss risk through the most subordinate (first loss) position, when the SPE is undercapitalized and its equity holders are passive, or when power and economics together lead to consolidation.

HOW IT ALL COMES TOGETHER

Let’s go through a few examples to show how structure drives accounting details.

SCENARIO 1: A SUCCESSFUL SALE (AND NO CONSOLIDATION). Imagine that you securitize $20 million in DSCR loans into a new SPE. You retain a portion of the residual

tranche along with the servicing rights, but an independent third-party trustee manages all significant credit decisions. Investors purchase senior securities worth $18 million. The SPE qualifies as a VIE because it lacks sufficient equity.

You do not consolidate the SPE under ASC 810 because you fail the power test. The trustee makes the key credit decisions. You also don’t absorb a majority of the entity’s risks or rewards relative to other parties with a significant economic interest.

The securitization meets the ASC 860 sale accounting criteria: The transferred loans are legally isolated, you do not retain effective control, and investors can freely pledge or exchange their securities. You retain a $2 million residual interest measured at fair value using a DCF model, and you elect the FVO for this retained interest.

Who consolidates the VIE in this case?

The SPE is a VIE, but you are not its primary beneficiary. Another party that meets both the power and economics criteria would consolidate. On your books, you would derecognize $20 million of loans, recognize $18 million in cash, record a $2 million retained interest, and recognize any gain or loss on the sale.

SCENARIO 2: A FAILED SALE (AND CONSOLIDATION). Now assume that you securitize $15 million in fix-and-flip loans through an SPE. You retain all servicing rights and hold a $2 million subordinate tranche that absorbs the first 20% of losses.

The SPE qualifies as a VIE. You control loan modifications and default decisions as the servicer, which satisfies the power element, and you retain a substantial subordinated position, which provides significant economic interest. You are, therefore, the primary beneficiary of the VIE under ASC

Private lenders can grow and optimize their capital through securitization, but the related intricacies can be daunting.”

810, and sale accounting becomes irrelevant because VIE consolidation rules are in effect.

Your financials would show $15 million in loans still on the balance sheet, $13 million in cash received from investors, $13 million in matching liability (a secured borrowing), and no recognized gain.

BEFORE YOU CLOSE

Ask your accountants and legal advisers whether the SPE is a VIE and whether you are primary beneficiary. Confirm that your securitization structure meets all the criteria for sale accounting under ASC 860. Validate that your retained interest uses sound and supportable assumptions and that documentation can withstand audit review. Document the appropriate fair value option and amortized cost. Ensure financial statements accurately reflect the true risk-and-return profile to investors.

BUILD INVESTOR CONFIDENCE

Private lenders can grow and optimize their capital through securitization, but the related intricacies can be daunting. With detailed knowledge of VIEs, sale accounting, and fair value measurement, you will be in a much stronger position to present your business with clarity and withstand audit scrutiny. Compliance is important, and so is transparency. Give partners and investors

the information they need as your business scales by aligning structure, policies, and systems so reported results reflect the risks and returns you chose.

As you execute your strategy, make sure your accounting policies and systems can produce the data needed to tell the right story about your business.

CHAD MURPHY

Chad Murphy is a partner at Richey May, where he specializes in working with private lenders and mortgage companies nationwide. His more than 14 years in the industry include time as a controller and CFO at lending institutions, giving him a unique perspective on both the operational and accounting sides of the business. He focuses on helping clients navigate complex topics like retained interests, participations, fair value measurements, securitizations, and financial reporting. He is passionate about helping lenders build strong financial foundations as they scale.

Use Automation and AI with Integrity

AI creates real efficiency only when it’s designed around transparency, human handoffs, and accountability.

PETE AMAYA III, RTL TECH

Let me start with the simple part: This is not legal advice. I’m not your counsel, and I’m not here to teach TCPA case law or parse every new FCC memo. What follows is strategic guidance from someone who builds AI-powered borrower communications for private lenders.

THE REGULATORY BACKDROP

That said, lenders do need to be aware of the legal backdrop. There isn’t a brandnew AI communications law yet, but regulators are applying existing TCP and FCC rules to AI tools. In fact, in February

2024, the FCC clarified that the TCPA covers AI-generated or “human-sounding” voices, meaning prior express consent is required just as it would be for a robocall or prerecorded message. So, the rules are already on the books, and enforcement is catching up as AI becomes more common.

That’s why this article frames disclosure, consent, and opt-outs as foundational. If you set those up today, you’ll be aligned both with current TCPA compliance and with future regulatory direction— whatever it ends up looking like.

From there, we’ll explore how to design the communications layer of your lending process so it’s effective, borrower-friendly, and something you can confidently stand behind—before you ever flip the switch on automation.

BORROWER, NOT TECH, FIRST

Here’s the reality on the ground. Borrowers care less about the technology and more about clarity and respect. If a text or call feels sneaky, or you can’t show where consent came from, you’ve created a trust

problem and an operational risk at the same time. None of us wants that. So, instead of waiting for a “final” regulatory playbook, build a borrower-first program that treats consent, disclosure, and opt-outs as table stakes. You’ll move faster later because you did the unglamorous setup now.

Start by drawing a clear line around scope. The focus here is AI-assisted communications such as calls, texts, and emails used to move a loan forward. This isn’t about underwriting decisions, credit models, or the broader debate over liability if AI makes a mistake. Those are separate issues with their own controls. Borrower outreach is its own lane, and it’s often the first place most lenders turn because the ROI is obvious: fewer missed signatures, fewer stalled files, and less manual follow-up.

If you’re thinking, “We aren’t using AI yet, so we’ll figure this out later,” that’s the real trap. What slows teams down isn’t the dialing technology; it’s the paperwork that comes with it. Updating closing docs and web forms under a deadline while your operations team is pushing for automation is the wrong time to start. Capture the right permissions and expectations now, so when you’re ready to pilot an AI assistant, the path forward is already in place.

PERMISSIONS, DISCLOSURE, AND OPT-OUTS

First, let’s look at what do the right permissions and expectations look like in practice. Your counsel should be able to provide the exact language, but the principle is straightforward: Wherever a borrower interacts with your online forms, point-of-sale flows, or closing

documents, make it easy for them to give consent to outreach that may include automation or an AI assistant.

If you’re collecting a checkbox on a loan application, don’t bury the lede. A simple statement such as, “I agree to receive calls, texts, or emails about my loan. Some communications may be sent by automated systems or an AI assistant. I can opt out at any time,” sets expectations clearly. For text messaging, specify that replying “STOP” ends communication. For voice, tell them they can ask for a human at any point. None of that is legal magic—it’s just good business and it aligns borrower expectations with how you’ll actually operate.

Second, don’t overlook disclosure. Borrowers shouldn’t have to guess whether they’re speaking to an AI assistant. If an automated voice kicks off the call, say so up front and give them a zero-friction off-ramp to a person. In practice, that sounds like this: “I’m an AI assistant calling on behalf of [Your Company] to help move your loan forward. If you’d prefer a human, I can transfer you right now.” The point isn’t to wave a compliance flag but to remove confusion. Clarity keeps call outcomes high and complaints low. Third, make opt-outs work everywhere, immediately—but also within the right

scope. If someone replies STOP to a text, that ends the texting, but it doesn’t automatically cut off phone or email. SMS opt-outs are typically treated as channelspecific. That said, best practice is to keep things borrower-friendly and transparent. A simple follow-up confirmation text such as, “You’ve been unsubscribed from text messages. If you’d also like to update your email or phone preferences, click here [link]”—both honors the immediate request and gives them an easy path to manage everything else in one place. Behind the scenes, treat consent and opt-outs like core data, not marketing metadata. Keep the receipt: what the

AI COMPLIANCE: A BEST PRACTICE GUIDE

Step 1: Define Scope.

» Focus specifically on AI-assisted communications (calls, texts, emails) used to move a loan forward.

» Be clear on scope to prevent overlap with unrelated processes.

» Recognize that getting permissions and disclosures now allows you to pilot AI when you’re ready.

Step 2: Capture the Right Permissions and Expectations.

» Use plain English in all borrower interactions; clearly state outreach may include automation or AI.

» For text messaging, specify replying “STOP” as an opt-out.

» For voice calls, inform borrowers they can request a human.

» Example checkbox statement: “I agree to receive calls, texts, or emails about my loan. Some communications may be sent by automated systems or an AI assistant. I can opt out at any time.”

Step 3: Provide Clear Disclosure at the Point of AI Communication.

» At the start of automated calls, explicitly mention the AI assistance.

» Offer an easy, immediate option to speak to a human. Example: “I’m an AI assistant calling on behalf of [Your Company]. If you prefer a person, I can transfer you right now.”

» The goal is transparency that reduces confusion and complaints.

Step 4: Ensure Seamless Opt-Outs.

» Make opt-out preferences effective across all channels.

» Treat opt-outs as core data.

» Store timestamps, consent language, and source.

» Maintain an accessible record for audits and customer requests.

» Respect opt-out requests promptly and consistently.

Step 5: Define Human Escalation Triggers.

» Decide in advance when conversations should escalate, especially known friction points such as identity issues, legal or complaint requests, or financial hardship.

» Document and test escalation processes to ensure smooth handoff from AI to human and avoid trapping customers in loops.

Step 6: Vendor and Program Management.

» Retain control over your program by owning the language, disclosures, consent logs, and routing.

» Hold vendors accountable to high standards by maintaining your own audit trail.

» Know which prompts are active and who approved them.

» Be able to answer questions about your AI use and governance.

Step 7: Conduct a “Paper Drill” Audit.

» Review existing application and closing documents to confirm consent language clearly covers AI and automation.

» Make sure forms are plain and transparent.

» Check that consent and opt-out data in your CRM is consolidated, timestamped, and synced.

» Address gaps before going live, ensuring compliance and borrower clarity.

Step 8: Approach Compliance with a Service Mindset.

» Think of compliance as enabling speed with integrity.

» Build borrower trust through transparency.

» Staff should confidently explain AI participation. Example: “Yes, an AI assistant helps us move things along. You can talk to a person anytime.”

borrower saw, what they agreed to, when it happened, and where it came from. When a regulator or auditor says, “Show me,” you should be able to deliver in seconds. Just as important, when a borrower asks, you should be able to respect their choice without hunting through five systems.

There’s also the human factor. AI should handle the routine work, not steamroll the situations that need judgement or nuance. Decide ahead of time when a conversation moves from the bot and to a person. Identity friction? Escalate. A complaint or legal request? Escalate. Signs of financial hardship? Definitely escalate. Document those triggers, test them, and make sure the handoff feels seamless. Few things erode trust faster than being stuck in a loop when you need a human ear.

OWNING THE PROGRAM

Vendors matter, but liability rests with you. Tools don’t replace judgment, and they don’t carry your compliance risk— your team does. That responsibility covers everything: what the assistant says, the disclosures you use, how you collect consent, how you log opt-outs, or how you route conversations to a human. Hold your vendors to strong standards, but don’t ignore governance. Keep your own audit trail. Know which prompts are live. Know who approved changes. If you can’t answer those questions internally, it doesn’t matter how slick the AI sounds on a demo.

If you’re looking for a starting point, run a quick “paper drill” before you pilot anything. Pull your current application and closing packages and ask: Do they clearly ask for outreach consent that can include automation or AI? Is the language plain enough that a borrower doesn’t feel surprised on the

AI should handle the routine work, not steamroll the situations that need judgement or nuance. Decide ahead of time when a conversation moves from the bot and to a person.”

first call? On your website forms, does the checkbox text match what you’ll actually do? Does your CRM have one place where consent and opt-out status live, synced across channels? Could you prove that status with a timestamped record? If you’re not there yet, that’s your workbench for the next two weeks. When those basics are solid, turning on an AI assistant feels like adding a team member, not taking a regulatory gamble.

One more thing about tone. Compliance shouldn’t feel like a scramble to dodge penalties. That’s not the best frame. The better one is speed with integrity—a process that runs faster because borrowers trust it and your team can explain it. When someone texts back, “Is this a bot?” your staff should be able to answer confidently: “Yes, an AI assistant helps us keep things moving. You can talk to a person anytime, and here’s how.” That’s not a legal position; it’s a service position.

And to close where we started: This isn’t a legal guide. It’s a peer-to-peer reminder from someone who’s seen what happens when teams rush AI before before laying the groundwork. The essentials are simple: Set expectations, earn permission, log the proof, and design the human escape hatch. Do that now, and when you decide to bring

AI into borrower communications, it will deliver what you wanted in the first place—a faster, cleaner loan process that borrowers don’t think twice about.

Pete Amaya III is the founder and CEO of RTL Tech, an AI company transforming private lending operations through its “agents-as-a-service” platform. With more than 25 years in the mortgage industry, Amaya brings deep expertise in residential transitional lending and a passion for solving bottlenecks with practical technology. Under his leadership, RTL Tech has developed AI assistants that streamline borrower communications, document verification, loan setup, and servicing follow-ups. Amaya is a frequent speaker and contributor in the private lending space, focused on compliance, efficiency, and helping lenders scale smarter with technology.

Junior Mortgages Doomed After AB 130?

Republished with permission from Doss Law. Original article published 7/1/2025 on dosslaw.com.

DENNIS

DOSS, ESQ., DOSS LAW, LLP

On July 1, 2025 California AB 130 became operative law in California. It is intended to remedy “zombie loans,” which are typically dormant loans, usually junior liens, that a homeowner thought was resolved or paid off but are revived by a debt collector or new servicer.

Formally, it creates California Civil Code Section 2924.13. It targets “subordinate mortgages,” but does not define that term. If property taxes and PACE/HERO liens were included, all mortgages would in that sense be subordinate to a superior lien. However, the common meaning of a subordinate mortgage is a mortgage that is junior in lien priority to one or more other mortgages on the same property, and the law is likely to be interpreted that way. The law prohibits conducting or threatening a foreclosure, judicial or non-judicial, on residential subordinate mortgages until the servicer (which includes self-servicers) records a Certificate of Compliance with the statute and mails it by certified mail, return receipt requested, to the last known mailing address of the borrower(s).

Under California Civil Code 2920.5, a “mortgage servicer” means a person or entity who directly services a loan, including managing the loan account by collecting

and crediting loan payments, managing any escrow account, or enforcing the note and security instrument. “Mortgage servicer” also includes a contracted subservicing agent to a master servicer, but does not include a trustee or a trustee’s authorized agent acting under a power of sale pursuant to a deed of trust.

The Certificate of Compliance must state that:

» THE MORTGAGE SERVICER DID NOT ENGAGE IN ANY UNLAWFUL PRACTICE DESCRIBED IN THE STATUTE, OR

» THE MORTGAGE SERVICER DID VIOLATE IT AND MUST PROVIDE A LIST OF ITS VIOLATIONS. THE NOTICE SHALL INFORM THE BORROWER OF THEIR RIGHT TO PETITION A COURT FOR RELIEF BEFORE THE FORECLOSURE SALE.

If the latter is true, the law affords the borrower an affirmative defense for foreclosure and enables a court to apply its equitable powers to bar foreclosure, adjust the amount owed, or even permit the foreclosure subject to future compliance and a corrected arrearage claim. If the sale has already taken place, it can be set aside if the borrower can prove the certificate was false or incomplete. There are five possible violations that the certification must address.

1. THREE YEARS OF SILENCE

If true, the certificate must state the mortgage servicer did not provide any “written communication” regarding the loan for three years. This section applies to all junior mortgages, regardless of collateral and regardless of purpose. It is, in a sense, a new form of statute of limitations.

2. NO SERVICING TRANSFER NOTICE

If true for 1-4 unit SFR loans, the certification must disclose that the mortgage servicer did not provide a timely notice of servicing transfer as required by law. Federal law, in the form of Regulation X of RESPA, Section 1024.33, requires a servicing transfer notice on consumer mortgage loans made by a “creditor” but only applies to consumer 1-4 loans. Business-purpose loans are exempt. California law, in Civil Code Section 2937, requires notice of “change of servicing” on all 1-4 SFR loans. Thus, the servicing transfer notice requirement will not apply to 5+-unit loans, loans secured by commercial property, land loans, agricultural loans, and industrial loans.

3. NO NOTICE OF OWNERSHIP CHANGE

If true for 1-4 unit SFR loans on the borrower’s primary residence, the certification must disclose any changes of ownership without timely notice to the borrower. Federal Regulation Z, Section 1026.39, requires notice of change of ownership as to consumer, primary residence loans. Exempt are businesspurpose loans and consumer loans not on the primary residence of the borrower. We found no equivalent provision in California law.

4. PRIOR WRITE-OFF NOTICE OR 1099

If the lender had previously given notice to the borrower that the loan had

been written off or had issued an IRS Form 1099 reflecting the write-off, the foreclosing lender must disclose that fact.

5. FAILURE TO PROVIDE MONTHLY BILLINGS

If true, the certification must disclose that the mortgage servicer failed to provide periodic billing statements when required by law. The applicable law is Regulation Z, Section 1026.7, applicable only to consumer loans made by “creditors.” We found no legal requirement to provide monthly billing on nonconsumer mortgages.

Thus, at the end of the day, junior priority business loans in California are not “doomed” as foretold. As to business-purpose loans, if the servicer provided notices of change of ownership as required by Civil Code Section 2937, a violation is not possible unless the loan has been dormant for three years. As to all business-purpose junior liens, there is the nuisance of recording and mailing a Certificate of Compliance before threatening, commencing, or continuing a foreclosure.

Dennis H. Doss is the owner and founder of Doss Law, LLP. A licensed attorney since 1978, he is well-versed in all aspects of mortgage finance and is a frequent lecturer on mortgage related issues, including consumer credit, commercial credit, mortgage-backed securities, private money lending, and lending compliance.

Avoid Pitfalls in Prepayment Penalty Rules for LLC Borrowers

Lenders face heightened compliance risk as states vary widely.

NICHOLE MOORE, ESQ., FORTRA LAW

In today’s shifting legal environment, lenders must stay alert to statespecific prepayment penalties (PPP) that may affect their underwriting decisions, especially in loans to LLCs or for business purposes.

Some states, like New Jersey, present challenges due to its statutory ambiguity regarding LLCs. Others, including California, Florida, and Texas, provide clearer rules. States such as New York and Illinois provide protections for residential borrowers but allow more flexibility for business-purpose loans.

NEW JERSEY’S AMBIGUITY ON LLC BORROWERS

New Jersey law protects certain borrowers from PPP on mortgage loans. Under N.J.S.A. 46:10B-2, a mortgage loan may be prepaid “by or on behalf of a mortgagor at any time without penalty.” A “mortgagor” is defined as “[a]ny person other than a corporation liable for the payment of a mortgage loan, and the owner of the real

property which secures the payment of a mortgage loan.” (emphasis added).

The statute further defines a “mortgage loan” as a loan secured by real property with one to six dwelling units, where the interest rate exceeds 6% annually. The property may be used for nonresidential purposes, provided a residential component is present and the loan proceeds are used for construction or improvement of the dwelling. Although the definition explicitly excludes corporations, the statute is silent on LLCs. This lack of clarity has created uncertainty as to whether LLCs are considered “mortgagors” under the statute. Despite this ambiguity, many lenders continue to apply PPPs to loans made to LLCs—exposing themselves to different interpretations and potential litigation.

To date, no published New Jersey case law has directly addressed whether an LLC qualifies as a “mortgagor” under N.J.S.A. 46:10B-2. In Lopresti v. Wells Fargo Bank, 435 N.J. Super. 311 (App. Div. 2014), the court held that a loan made for business purposes did not qualify as a “mortgage

loan” under the statute, even though it was secured by a guarantor’s personal residence, because the proceeds were used solely for business purposes. While informative, this case did not address the status of LLCs under the statute.

Recently, Fortra became aware that a servicer sent a memo to its customers citing an unpublished New Jersey Department of Banking and Insurance Opinion (DOBI) opinion (No. 0081), which suggests that LLCs are not categorized as corporations under the statute. However, because

the opinion is not publicly available, Fortra has not been able to verify this conclusion. Fortra has inquired with the DOBI, but at the time of this writing, DOBI has not confirmed the opinion.

Fortra Law is actively seeking clarification on this issue, including any legislative amendments, regulatory guidance, or case law that may clarify the treatment of LLC borrowers under N.J.S.A. 46:10B2. Given the current uncertainty, we recommend lenders consult with counsel when structuring New Jersey

loans involving LLCs and one-to-six dwelling unit residential properties.

A LOOK AT OTHER STATES

While New Jersey remains ambiguous, many other states provide clearer guidance related to PPPs for business-purpose loans to LLCs. State regulations vary depending on the state’s stance on consumer protections and business lending practices.

CALIFORNIA. California enforces strict limits on prepayment penalties for both

residential and commercial loans. Under California Civil Code Section 2954.10, prepayment penalties are generally prohibited for loans secured by residential properties, unless the loan is classified as a business-purpose loan. Even then, PPP restrictions vary based on the lender’s or broker’s license, the property type, the loan type, whether the interest rate is fixed or adjustable, and the term of the loan. In some cases, the penalty must not exceed a specified percentage of the loan amount, and in all cases, the PPP must be clearly disclosed to the borrower at the time of

loan origination. Regarding loans to LLCs, California law tends to focus on whether the loan is for a business or residential purpose, in addition to whether it complies with the other regulatory protection standards.

FLORIDA. Florida’s law regarding prepayment penalties on business-purpose loans is a bit more lenient. In Section 687.04 of the Florida statutes, prepayment penalties are generally permissible for commercial loans, but they must be explicitly disclosed and not excessive. However, Florida law places certain restrictions on residential loans, and prepayment penalties may be limited depending on the amount of the loan and its classification. Florida’s commercial loan designation typically includes loans made to LLCs, and while the state permits prepayment penalties, there must still be compliance with fair lending standards, including proper disclosure.

ILLINOIS. Illinois has regulations that are more borrower-friendly for residential mortgage loans. Specifically, the Illinois Residential Real Property Disclosure Act prohibits prepayment penalties on loans secured by a one-to-four dwelling unit residential property and made to an individual where the interest rate on the loan exceeds 8%. However, prepayment penalties on business-purpose loans made to LLCs are permissible as long as they are clearly outlined in the loan agreement and comply with disclosure requirements. LLCs are categorized as business borrowers, and PPPs are generally enforceable.

NEW YORK. In New York, prepayment penalties on residential loans are prohibited under Banking Law Section 6-l, except in the case of business-purpose loans, but the restrictions differ depending on property type, occupancy, and time restrictions on when a lender can charge the penalty.

Prepayment penalties are typically enforceable for LLCs and other business entities, provided they do not violate usury laws. New York’s legal landscape focuses on the borrower’s use of the property and whether the loan is tied to an investment or a business purpose. Prepayment penalties must be reasonable and disclosed upfront in accordance with state disclosure laws.

PENNSYLVANIA. Residential loans that involve LLC borrowers typically fall under stricter regulations. Section 406 of the Loan Interest and Protection Law allows prepayment penalties on business-purpose loans, but there are threshold limits on one-to-two dwelling unit residential properties.

Under 10 Pa. Code § 7.2, a “residential mortgage loan” is subject to the prohibition against prepayment penalties for loans of $312,159 or less and secured by a oneto-two family dwelling. However, the definition excludes loans made to a person in the business of residential building or development when the financing is used to construct a one-to-two family dwelling. To qualify for this exclusion, the transaction must be bona fide construction financing to a builder or developer and not a device for evading compliance with the Pennsylvania Loan Interest and Protection Law. For LLCs, prepayment penalties may apply to commercial loans, provided the penalties are disclosed in writing and comply with the usury limits.

TEXAS. In Texas, prepayment penalties are allowed for both residential and commercial loans, but certain limits apply. The Texas Finance Code prohibits prepayment penalties, unless the loan is secured by a one-to-four dwelling unit residential property and a business-purpose loan. Even then, there are restrictions, depending on the interest rate and whether the property is owner-occupied. Prepayment penalties

on loans made to Texas LLCs are less restrictive than New Jersey’s and typically are enforceable on loans where the property is used for business purposes. However, loans involving residential properties with business components (e.g., mixed-use properties) may face stricter scrutiny.

OTHER STATES. Louisiana, Maryland, Minnesota, Mississippi, and Ohio have very nuanced and specific prepayment penalty restrictions. Lenders should seek legal counsel when structuring loans in any state that has prepayment penalty restrictions.

If you have questions about how New Jersey’s statutory revisions or a particular state’s prepayment penalties may impact your lending practices or investment strategies, please reach out to the Banking & Finance team at Fortra.

Fortra Law (recently rebranded from Geraci LLP) in their banking and finance department and has extensive real estate and finance experience. Moore has served as assistant general counsel for a government agency, representing the agency in all phases of real estate development and advising on the risks associated with multilayered real estate transactions. Moore’s past experience also includes foreclosure and bankruptcy litigation, negotiations, contract review and drafting, and legislative drafting.

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ALEX BURIAK, JET LENDING LLC

“With a commitment to excellence and a passion for pushing boundaries, Alex has consistently delivered exceptional results, inspiring those around him. His ability to overcome challenges, foster collaboration, and implement forward-thinking solutions sets him apart as a true leader in the industry” – Stephanie Rojas, Jet Lending LLC

NEMA DAGHBANDAN, LIGHTNING DOCS

“Nema isn’t just a trusted legal advisor—he’s a true thought leader, mentor, and educator who elevates everyone around him. A six-year Super Lawyers® Rising Star and AVVO® 10/10 rated attorney, he embodies technical excellence, consistent client impact, and strong professional leadership in the private lending industry.” – Dennis Baranowski, Fortra Law

KEVIN KIM, FORTRA LAW

“Kevin is a force in private lending—not just for his deep legal expertise but also for his genuine passion for the people in this industry. A partner at Fortra Law and host of Lender Lounge, Kevin makes complex topics approachable and helps build community in a meaningful way. His leadership, insight, and warmth make him a true standout.” – Jennifer Young, Fortra Law

KEVIN RODMAN, ASSET BASED LENDING

“Kevin has delivered transformational results through visionary leadership and flawless execution. As CEO of Asset Based Lending, he led the company’s second and third securitizations totaling $365 million in bonds backed by over $400 million in collateral. Under his guidance, ABL also set a new industry benchmark, achieving over $3.3 billion funded with zero losses. Kevin’s strategic foresight and market expertise have enabled 3x growth in just the past three years.” – Rachel Drage, Seroka Marketing & PR

NICK WILSON, LEGACY GROUP CAPITAL

“A longtime employee and the vice president of business purpose lending at Legacy Group Capital, Nick shares his institutional knowledge and vision by leading a team focused on improving every aspect of the business. His determination resulted in his team funding 72% of its total Q1 2024 production within the first month of 2025.” – Melissa Hartman, Legacy Group Capital

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STEVE ERNEST, FORTRA LAW

“Steve’s dedication goes beyond the courtroom. He has for years served in community volunteer roles, including as moderator and trustee of the Presbytery of Los Ranchos and as judge advocate and director with Dana West Youth Sailing. His leadership in both industry and community embodies the spirit of this award.” – Kasey Swain, Fortra Law

BRIANA HILDT, CARDINAL CAPITAL GROUP

“Inspired by their daughter’s medical struggles and the isolation families often face, Briana and her wife created Cardinal Cares to support families in crisis. In the foundation’s first year, Briana organized a charity golf tournament that raised over $85,000 for Connecticut Children’s Medical Center. As founder of Cardinal Capital Group, Briana leads with empathy and boldness, building a business rooted in heart. Her story demonstrates that aligning personal mission with professional drive can create meaningful, lasting impact.” – Nina Gozzi, Cardinal Capital Group

BILL TESSAR, CV3 FINANCIAL SERVICES

“In the wake of the devastating California wildfires of January 2025, Bill mobilized the private lending community with urgency, compassion, and unity. He spearheaded the CV3 Cares Wildfire Relief Fund, raising nearly $90,000 for organizations on the front lines: Pasadena Humane (shelter and care for displaced pets), Los Angeles Boys & Girls Club (stability and safe spaces for youth), and the Greater Los Angeles Education Foundation (educational and mental health resources for students).

“Through partnerships with The Mortgage Office, Forta Law, and countless peers, Bill demonstrated the power of an industry rallying together with purpose, using his platform to fund hope and inspire meaningful action when people needed it most.” – Elizabeth Hillestad, CV3 Financial Services

JENNIFER YOUNG, FORTRA LAW

“Jennifer has made significant contributions through her volunteer work and leadership in Women in Private Lending, where she helps elevate women through panels, mentorship, and networking events. She also leads Fortra Law’s licensing team and regularly hosts webinars and sessions to educate and empower lenders nationwide. Her contributions reflect true community spirit and industry-wide uplift.” – Kevin Kim, Fortra Law

EXCELLENCE AWARDS NOMINEES

RISING STAR

Rising Stars are members who have accomplished outstanding growth in their companies during the past year.

JANINE CASCIO, SIMPLENDING FINANCIAL

“Janine is the CEO and founder of Simplending Financial, where she makes a profound impact by championing diversity and inclusion in the finance industry. Janine has boldly broken barriers by building an all-women leadership team, fostering an environment of empowerment, innovation, and growth.” – Jesey Blevins, Simplending Financial

BENN JACKSON, CONSTRUCTIVE CAPITAL

“Benn earned a promotion to vice president of wholesale lending in mid-2024 by leading his team of eight to drive significant originations growth. He also represents Constructive Capital at industry events, including speaking on panels and podcasts, while still making time for philanthropic activities throughout the year. Benn’s contributions continue to increase—a true Rising Star!” – Greg Hohnstein, Constructive Capital

SAVANAH MOROZ, CV3 FINANCIAL SERVICES

“Savannah leads with three key elements: ethics, a “client-best interest” service heart, and a true love of her profession. I refer many clients to her and have never received negative feedback from any of my people. It’s been wonderful to see the industry leader she’s become.”

– Scott Ward, Thee Network

ZACK SIMKINS, VASTER

“Since becoming managing director of Vaster in 2021, Zack has overseen more than $500 million in originations, significantly expanding the firm’s role in South Florida’s residential lending market. Under his leadership, Vaster has provided $150 million in financing for luxury spec home development since 2024. He also serves on FIU’s Hollo Real Estate Advisory Board.” – Nathalie Alvarez, Ander & Co

JULIA WILLETTS, MERCHANTS MORTGAGE & TRUST CORPORATION

“In just three years at Merchants, Julia has earned two promotions—first to assistant vice president and then to vice president of loan originations. She has built a dynamic team of loan officers, overseeing pipelines that consistently produce $10 million in monthly loan volume across more than 10 states. Julia’s exceptional leadership, market expertise, and ability to drive scalable growth make her an outstanding candidate for this recognition.” – Lauren Lorey, Merchants Mortgage & Trust Corporation

FALL GUIDE

If you’re looking for a service provider with real experience working with private lenders, this guide is your starting point.

In each issue, we publish a cross section of specialties. These providers do not pay for inclusion. Instead, we vet them by reviewing their product offerings and talking to private lender references.

AAPL members can access all vendors online at aaplonline.com/vendors.

» ACCOUNTING

» BUSINESS CONSULTANTS

» DEFAULT & LOSS MITIGATION

» LEGAL SERVICES

» WAREHOUSE LENDERS

» APPRAISERS & VALUATIONS

» CAPITAL PROVIDERS

» DATA

» ENVIRONMENTAL SERVICES

» LEAD GENERATION

» NOTE BUYING/SELLING

Construction Inspection Specialists LLC cisinspects.com (707) 838-1679

Secondary Specialtt Funds Control

» Risk Management

Granite Risk Management www.GraniteRiskManagement.com 888-456-4888

Secondary Specialtt Funds Control

» Construction management

Partner Engineering and Science, Inc. partneresi.com (800) 419-4923

Secondary Specialties Funds Control, Default & Loss Mitigation

» Environmental Due Diligence

» Property Condition Assessments

» Asbestos Survey, Mold Assessment, Lead, Radon Testing, etc.

» ALTA Surveys, Zoning Reports, Surety Bond Workout and Completion

K&A Builder Group Kabuildergroup.com (713) 331-1722 DUE

AFX Research afxllc.com (877) 848-5337

» BROKERS

» FUNDS CONTROL

» LOAN ORIGINATION SERVICES

» LOAN SERVICING

» DEVELOPMENT COST ESTIMATES

» EDUCATION

» FUND ADMINISTRATION

» INSURANCE

» MARKETING

» RECRUITMENT & HEADHUNTING

Consolidated Analytics ConsolidatedAnalytics.com (224) 420-2450

DILIGENCE

» Flat-rate title updates

Business Screen businessscreen.com (216) 770-7846

» Business and Executive Background Checks

» Continuous Background Screening

Checkpoint Screening checkpointscreening.com (888) 534-1233

» Individual and Business Credit Reports

» Criminal Record and Civil Litigation Searches and Background Checks

Secondary Specialties: Appraiser & Valuations

» Due Diligence

» Valuations

» Fulfillment

» Advisory and Consulting

Truepic truepic.com (619) 512-9759

Secondary Specialties Due Diligence

» Virtual inspection platform

EDUCATI o N

American Association of Private Lenders

aaplonline.com (913) 888-1250

» Annual Conference

» Quarterly Private Lender Magazine

» Online and Classroom-Style Certified Private Lender Associate and Certified Fund Manager Courses

» Webinars, Compliance and Legal Resources

» Downloadable Guides and Templates

Fortra Conferences fortracon.com (949) 379-2600

» Networking

» Raising Capital

» Deal Flow

» Education for Private Lenders

» Lead Generation

National Lending Experts

nationallendingexperts.com (619) 865-3177

Fintech Nexus fintechnexus.com (646) 971-1645

IMN

imn.org

IN s URANCE

Anderson Agency andersonagency.group (812) 887-0443

» Property, flood, REO, and Lender-placed insurance

National Real Estate Insurance Group affiliate.nreig.com/AAPL (888) 741-8454

» Residential Ownerand Non-Owner Occupied, Renovation, Vacant property

» Commercial Insurance

Priority Title & Escrow

prioritytitleus.com (757) 300-2526

» Nationwide Coverage

» Purchases and refinances, Construction and renovation, Fix and flip, Portfolios (single or multiple-state properties), DSCR loans, Non-US owner/ foreign transactions, REO services/deed in lieu of foreclosures/default, Reverse mortgages, Commercial, LLC s and trusts

» Property and foreclosure reports

Ross Diversified Insurance Services, Inc. rossdiv.com (800) 210-7677

» Nationwide Property Insurance

» Lender-Placed Insurance for Commercial and Residential

» REO Insurance for Commercial & Residential

High Divide Management

highdividemgmt.com (816) 807-4039

Secondary Specialty Accounting

» General Ledger

» Financial statements and footnotes

» Support audit process

» Calculate partner allocations and waterfalls

» Manage LP reporting

Socium Fund Services sociumllc.com (973) 241-3300

» Insurance Monitoring

» Investment Insurance for 1-4 Units

BSP Insurance

bspinsurance.com (203) 237-7923

Liberty Title & Escrow libtitle.com (401) 529-4773

Realprotect realprotect.com (800) 579-0652

MARKETING

iFocus Marketing ifocusmarketing.com (913) 578-8521

» Ad Targeting Services: Household, Geofence, Retargeting

RetroCurrent Marketing

Retrocurrentmarketing.com (470) 208-0433

» Strategy planning

» Content capture

» Media management

» Ad buying

KallistoArt kallistoart.com (813) 563-5321

KC & CO Communications KCCOPR.COM (202) 630-3215

RECRUITMENT & HEADHUNTING

Huffman Associates LLC HuffmanAssociates.com (631) 969-3602

» Recruitment and Executive Search for all aspects of the U.S. RE Finance market

Mauve Talent Group A mauvetalent.com (949) 910-3004

» Recruitment Services: Underwriting, Processing, Loan origination, Accounting, Marketing

Workergenix

workergenix.com (423) 251-5060

From Burnout to Breakthrough

Stepping away shows that survival in lending isn’t about scale— it’s about sharpening your edge and owning your niche.

ROMNEY NAVARRRO AND CHRIS RAGLAND, RAGLAND NAVARRO CAPITAL

“From exits to evolution, the next chapter in private lending is defined by maturity, specialization, and grit.”

The private lending world is relentless. Big deals, little deals, easy deals, complex deals—and everything in between.

Succession planning, however, may very well be the biggest deal of your life.

At its core, succession planning is simply planning your exit—deciding how, when, and to whom you’ll eventually pass the baton. But the story doesn’t end there. It’s where real work begins. Because it’s one thing to picture the destination—it’s another to execute.

Chris and I spent years in the trenches. Chris built a reputation as the “investor whisperer,” the guy who could sit across the table from investors and make them lean in. I lived in the details of the deals—structuring them, working through the weeds, ensuring borrowers got what they needed, and protecting investors. It was a rhythm that worked—

until it didn’t. The pace, the pressure, and the weight of running at full speed caught up with us. Chris stepped back in 2019; I followed years later. Stepping away taught us something important: When the fun and creativity disappear, so does your edge and your passion. Taking a break gave us time to find perspective and reinvent. When we compared notes, one thing became obvious: Our best work happened when we leaned into what we do best—and we did it together.

That’s how this new chapter began. Not as two guys trying to rebuild the past, but as dealmakers stepping into a financial revolution. Why a revolution? Because banks don’t get guys like us. They don’t get our borrowers either. They don’t see the grit it takes to build something from scratch, or the creativity needed to make a deal work when the spreadsheets say it shouldn’t. But we get it—because we’ve lived it.

At Ragland Navarro, we’ve set up three pillars: Advise, Manage, and Trust. These

aren’t buzzwords; they’re hard-earned lessons. Every scar taught us something. One lesson that stands above the rest is this: In a crowded market, your niche is your lifeline. Too many lenders chase cheap capital and lose themselves in the noise. We learned to stop apologizing for not being the cheapest and doubled down on being the best at what only we can do. That’s where we found our footing again.

So, what’s next? The same as it is for the industry—evolve, reinvent, and find and conquer niches. The future of private lending is maturity and specialization. That’s where the opportunity is, and that’s where we plan to live.

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