Frequently Asked Questions

Below are several questions to help both current and potential lenders better understand our company and the private lending process. It is a priority for CapSource to insure that each person we work with feel confident in their ability to fully understand any potential problems and benefits of private lending. We hope the information contained below will assist you with making informed decisions in order to take hold of financial opportunities that fit your individual needs and expectations.

CapSource Inc.

Who is CapSource Inc?

CapSource Inc. is a privately held loan servicing company located in Henderson, NV. Established in 1997, CapSource Inc. Has successfully funded and serviced private loans throughout the United States including, Utah, Arizona, California, and Nevada, . The focus of business has been to service loans for owners and developers of real estate properties while providing a consistent high yield investment option for our clients. We take pride in the financial education we are able to share with current and potential clients and are excited to play a unique role in this very oportunity filled real estate market. By using traditional concepts with an innovative, resoureful,and diligent approach to our business, we bring together lenders and borrowers to create a niche marketplace whereby time sensitive special needs financing is met with alternative investment opportunities for premium risk adjusted returns.

What is CapSource’s Experience?

CapSource has been servicing loans for over fourteen years. During that time, CapSource has serviced almost 200 private loans with a total value greater than $400 Million. The managers of CapSource have decades of relevant experience in real estate finance.

How is CapSource Inc Regulated?

CapSource Inc is currently registered with the State of Nevada Division of Mortgage Lending as a private lending and loan servicing company.

Private Lending

What is Trust Deed Lending?

A Trust Deed Loan usually consists of a Promissory Note secured by a Deed of Trust recorded on real property. The Borrower executes the Note payable to the Lender and promises to pay the Lender a certain interest rate on the loaned money, plus repay the principal amount within a specified time frame. The terms of the deed provide that the transfer of legal title to the trustee will be void on the timely payment of the debt. If the borrower defaults in the payment of the debt, the trustee is empowered by the deed to sell the property and pay the lender the proceeds to satisfy the debt. Any surplus will be returned to the borrower.

How does a Deed of Trust secure a loan?

When a borrower signs a promissory note, he is agreeing to pay the lender a specific amount of money according to certain conditions. In order for the lender to protect his interests, he will also require that the borrower sign a security instrument in favor of the lender. This may be in the form of a mortgage or a deed of trust. Whichever document is used, the purpose of both types of documents is to secure the note and offer protection to the lender by providing a means for the lender to take possession of the property in the event of default.

What determines whether a Mortgage or a Deed of Trust is used for Security?

Depending on where the property is located, state law will determine which type of security instrument must be used. In title theory states, a mortgage is used and it conveys ownership to the lender. A clause in the mortgage provides that title reverts back to the borrower when the loan is paid. In lien theory states, the mortgage creates a lien only on the property and the title remains with the borrower. The lien is removed when all the payments have been made. Some states are considered modified lien theory states and in these states the title remains with the borrower, but the lender may take title to the property if the borrower defaults.

How does a lender take possession of assets upon borrower default?

State law will determine the method of foreclosure which must be used. Generally, the rules when using a Deed of Trust allow for a faster foreclosure time than with a judicial foreclosure required with a mortgage. Under a Deed of Trust, when the borrower defaults on the loan, the lender delivers the Deed of Trust to the trustee, who then is instructed to sell the property. The right of the trustee to sell the property is called foreclosure by power of sale. It differs in several respects from the power of a mortgage to sell mortgaged property upon default, which is called a judicial foreclosure. A foreclosure by power of sale is neither supervised nor confirmed by a court, unlike a judicial foreclosure. While the rights received by a purchaser at a foreclosure by power of sale are the same as those obtained at a judicial foreclosure, there is a practical difference. Since the sale has not been judicially approved, there is a greater possibility of litigation over title, thereby making title to the purchased premises less secure than one purchased at a judicial foreclosure. In addition, the lender may purchase the property for sale under the provisions of a Deed of Trust, since the neutral trustee conducts the sale. This is not the case in a foreclosure, unless contract or statute provides otherwise, since the mortgagee must act impartially in selling the property to satisfy the debt. Some mortgages may, however, provide for foreclosure by power of sale. The procedure for a foreclosure by power of sale is regulated by statute, a characteristic shared by a judicial foreclosure. All interested parties must be given notice of sale, which must be published.

What are usury laws?

Many state’s laws provide that you cannot lend money at an interest rate in excess of a certain statutory maximum. This is also known as a “usury limit.”

What is loan syndication?

Loan syndication is the process of involving several different lenders in providing various portions of a loan. This is mainly used in large loan situations. Syndication allows any one lender to provide a comfortable portion of a loan while maintaining a more prudent and manageable credit risk exposure because the lender isn’t the only creditor.

What is a Fractionalized Deed of Trust?

In fractionalized trust deed investments, multiple investors contribute capital to fund undivided interests in the trust deed. Since a single investor does not need to put down the entire sum, this method may be preferable for those with less money to invest. This also allows for greater diversification by placing capital designated for trust deed investments into many different trust deeds representing different locations and product types, thereby diversifying many risks.

What are Phase 1 and Phase 2 environmental reports?

Phase I and Phase II environmental reports are prepared for a real estate holding to identify potential or existing environmental contamination liabilities. A Phase I analysis of the land includes examination of potential soil contamination, groundwater quality, surface water quality and sometimes issues related to hazardous substance uptake by biota. Phase II Environmental Site Assessment is an “intrusive” investigation which collects original samples of soil, groundwater or building materials to analyze for quantitative values of various contaminants. This investigation is normally undertaken when a Phase I ESA determines a likelihood of site contamination. The most frequent substances tested are petroleum hydrocarbons, heavy metals, pesticides, solvents, asbestos and mold.

Private loans seem expensive; why would anybody use them?

Although private loans are often more expensive than traditional bank loans, private money has several benefits over institutional money that warrant added cost. Private loans are usually underwritten and closed in a fraction of the time it takes for a traditional bank to fund. Private lenders also offer flexible terms not available with institutional loans. Because private lenders are mostly concerned with the value of collateral used to secure a loan, borrowers with bad credit or other issues are ale to obtain private financing when they would certainly be turned down when applying for institutional financing. Borrowers who fail to qualify for the guidelines of a conventional loan from a bank require private money lending. Although an investor’s credit and income may be sufficient according to traditional guidelines, the classification of a trust deed loan as “sub prime” prevents the lender from granting the loan. Thus private money lending provides an attractive and reasonable solution with more lending options.

Lenders

How do I become a lender?

If an individual is interested in private lending and would like to register with CapSource Inc to receive loan opportunity information, they must first pass through a screening process. This process is designed to filter out unqualified individuals who are either not suitable or who are not capitalized properly to engage in private lending. If you are interested in registering with CapSource Inc please contact us at www.CapSourcenv.com.

Is there an individual minimum loan amount?

The minimum amount an individual may loan in a fractionalized lending opportunity has been set at $10,000. We have instituted this threshold in order to reduce the overhead associated with servicing loans with multiple lenders. It behooves a lender to spread their total capital in private loans among several loans to diversify and reduce overall risk.

Can I lend privately through my IRA?

It is possible to lend privately through a self-directed IRA. The rules regarding self-directed IRA’s allow for a much broader spectrum of acceptable investments.

Is Private Lending right for me?

Private lending is not appropriate for every individual. Although double-digit returns on trust deed investments may sound tempting, you should be wary. Investors should thoroughly research a property’s title status and market value before investing in a potential trust deed based solely on the promise of a high return. As with any investment you should conduct your own due diligence and examine the general risks of lending as well as the potential rewards. Liquidity risk is very prevalent in private lending. Every investment venture has a degree of risk and yet trust deeds are shown to be the safest of all investments today. Why? Because a trust deed loan is secured by something tangible – acreage, houses and other valuable buildings.

Borrowers

What types of real property are acceptable collateral for a private loan?

CapSource Inc services private loans with several different types of assets used as collateral. Asset value is more important than the type of asset. However, different types of property have values that are easier to assess than others. For instance, commodity prices are easily ascertainable, whereas the value of an existing business can be very difficult to determine. The majority of private loans serviced by CapSource Inc are backed by real property such as raw land, commercial buildings, apartment complexes, single-family homes or industrial complexes. Non-traditional assets can be used as collateral for a private loan; however, the more exotic the asset, the more due diligence work and therefore time is required.

Are loans required to be recourse?

There have been instances in the past where a borrower’s collateral was strong enough to preclude full recourse. However, the majority of our loans are recourse. The underwriters who assess the loan package have discretion over whether a personal guarantee will be required in each instance.

How much can I borrow?

CapSource has funded loans as small as $20 thousand and as large as $16 million. We specialize in loans between $250 thousand and $3 million. However, the ultimate deciding factor on the amount lent will always be the value of assets securing a loan.

How quickly can CapSource Inc fund a loan?

Average turn around time on a loan is 10 days. However, there are many factors that can accelerate or delay loan funding including collateral type and location, title issues, and loan complexity.

How do I get started?

The process begins with a borrower contacting CapSource Inc. An account executive can take basic information over the phone and quickly determine if a given scenario is plausible or not. If the underwriter believes a loan is plausible, they will request an executive summary and begin research into the details. Pricing and terms will be determined following intermediate due diligence.

What are typical rates and terms?

Private loans generally have interest rates ranging from 10% – 24%. Loan terms can range anywhere from 30 days to a full year.

Are extensions possible?

Yes. Loan extensions are usually negotiated before the conclusion of the original loan term when it is deemed likely the borrower will not be able to fully repay on time. Extensions may also be arranged before a loan funds based on the strength of the loan package and the nature of the borrower’s exit strategy.

What are my options if I can’t pay the loan within term?

CapSource Inc employs exit strategists who are a key resource in helping each borrower accomplish their goals. Each borrower is assigned a contact with whom they will communicate on a regular basis to ensure that all measures are being taken to accomplish their strategy. These specialists can often assist the borrower in locating potential buyers, take out financing, or in formulating alternative strategies as needed. In the event that a borrower loses confidence in timely loan repayment, CapSource Inc will work with them to negotiate extensions and forebearance to make sure the interests of all parties are protected.

Brokers

Does CapSource Inc pay referral fees?

Yes! Please contact us for details.