My clients were a team of a very savvy realtor, Joe Velasco, and a Pensco Trust client, Peter Sanchez. Their concept was simple enough: refinance an IRA property that had recently been purchased with all cash; then use that cash along with Mr. Sanchez’s other IRA funds to purchase a second rental home for his IRA. One issue we had to deal with was the renovation work being done on the home that had just been purchased. This had to be completed before we could get it appraised. However, it had to be appraised before they could go forward with the other purchase. After some delays the appraisal was done so the refinance loan could be finished. Then the purchase was ready to be made. So far, so good – we were on schedule to close the purchase on time according to the contract.
Guess what? The fun of overcoming another adversity to be able to close on time was just beginning. The problem was with the title report that was filed on the property that had already been purchased which we needed to refinance. This property was an REO (a bank owned property). As such, it was necessary to have the name of the state on the grant deed where the bank that owned the property originated. In addition, the title company handling this transaction also required the signed power of attorney to be recorded, but it wasn’t. To make this more interesting, the title company that handled this original transaction of Mr. Sanchez’s first IRA purchase was a division of the same title company (in a different city) that was handling the refinance of the same property. So this was an internal problem that the Chicago Title Company was dealing with. The escrow officer in the office where the title insurance was issued when the first purchase was made insisted that the grant deed didn’t need to name the state in which the lender (from whom the property was purchased) was located. Nor, did they require the power of attorney to be recorded. The Senior Title Officer for Chicago Title insisted the state was required to be named on the grant deed and the power of attorney had to be recorded. In the end he was correct; however, we lost more than a week due to this mistake and internal issue at the title company. The title officer handling this escrow said she had never seen this occur in her 20 years in the business.
The lender would not wire the funds to Mr. Sanchez’s Pensco Trust account for the refinance until this issue was settled. The title company handled their internal discrepancies and re-did the title insurance policy for the first purchase correctly so the lender could wire the funds to Mr. Sanchez’s Pensco account providing enough funds to fund the purchase of the second home. All in all, Mr. Joe Velasco, the ‘savvy’ realtor kept it all together and obtained the necessary extension from the sellers to make it work. The purchase was concluded successfully only 2 days later than the contract date. The transactions were done within days of each other and Mr. Sanchez now owns 2 properties in his IRA.
Well here’s another one for the books. The ingredients are these:
1. Take one hard working man with excellent credit who has suffered through numerous financial setbacks over the past 30 years.
2. Mix in a business that has been in both Mill Valley and Tiburon for 46 years which he has been running for the past 10 years.
3. Throw in the finest soft frozen yogurt ice cream this side of the Mississippi.
4. Complete this recipe with a consistent net profit each year for the past 4 plus years.
5. And, WHAT DO YOU GET?
I’ll tell you what you get, a successful cash flowing business that cannot get one bank to provide this hard working Marinite a line of credit for $35,000. Every bank we turned to - some major name banks, some community banks - all said, “we’re not comfortable with the amount of his debt.” However, he has proven consistent record of paying all of his bills early or on time, he has paid down principal portions of his debt throughout the year, he has maintained 700 credit scores throughout the year, yet no bank would lend him any money. He simply needed a small line of credit to get him through the 3 leanest months of the year for his business - the winter months - November, December and January.
Let’s not forget that he has been running this business for 10 years, lost $200,000 when the town of Tiburon forced his business to close after driving traffic away from Main Street where he had set up shop. All the while Woody’s has been serving the community with not only his phenomenal, sweet tasting, soft yogurt ice cream but supporting local schools by volunteering his time and his business name to their money raising campaigns. Yet, no bank would step up to the plate and provide WOODY’S YOGURT PLACE with a small business loan.
This all points to a bigger issue - the TARP money. Where did all the money that the federal government gave to the banks go and what did it get used for? Wasn’t it supposed to be used to infuse the economy by helping the small business person? If the banks got bailed out, shouldn’t they help ‘bail out’ the small businessman who desperately needs financial assistance to get him through some tight times? Well, my experience as a commercial loan broker proves otherwise. That money hasn’t been provided to the local economy the way it was designed. The banks have kept those funds, fattened up their balance sheets, bought other failing banks and, in general, horded that money.
To be fair, perhaps some of the banks that turned Woody’s loan request down didn’t get TARP money, or if they did, maybe they have helped some business people with their financial needs. However, we do know that the big banks we approached definitely did get TARP money. Matter of fact, Woody’s owner has accounts at both of those banks, yet they wouldn’t lend him the much needed $35,000. We’re talking about a business that grosses $650,000 to $700,000 per year. Moreover, Woody’s owner is not the only businessman that I have seen this happen to. There’s some second thoughts about continuing to do business with these banks.
Lending Resources Group was not to be deterred. We continued to seek out a lender that would hear Mike Woodson’s (Woody’s) story and understand his predicament. One local bank which refused the loan was still good enough to refer us to a community center serving a local foreign community in San Francisco which makes some of its money by arranging small business loans through the SBA! Can you believe that? A foreign community service center who is granting small business loans to hard working, steady Eddy’s like Mike Woodson who need some cushion to get them through a few tough months of their cyclical business year. What a concept? A foreign community service center that is helping a local American obtain a loan that he couldn’t get from the banks in his own back yard including the bank that he uses for his payroll and credit card services.
That’s exactly how we ended up getting the $35,000 that Mike needed - through the foreign community center. They were very polite, very knowledgeable and very cordial to Mr. Woodson. They visited his place of business, interviewed him and were sufficiently impressed as Lending Resources Group has been all along. Mike Woodson is a standup businessman who has persevered and succeeded in the face of great adversity over the past decade while making Woody’s Yogurt Place a household name for soft frozen yogurt ice cream in Marin County!
