In certain instances, the loan to value, or equity position of a property, may be too high, making it impossible to structure a hard money loan. In these cases, where the subject property is too burdened with debt for the borrower to achieve his/her loan goals, additional collateral can be used to make the loan to value more acceptable for the private loan investor.
The cross-collateralization of more than one property, sometimes referred to as a “blanket mortgage”, can be enough to make sense of tough deal. Not all homeowners have additional properties with strong equity to collateralize, but those that do offer the lender more security.
In one instance that we just recently funded, a rehab buyer only had a small amount to place as a down payment for a great unexpected fixer deal. It was not sufficient down payment to make the investor feel comfortable enough to loan on the deal. So, the borrower agreed to allow us to put a new first loan on the fixer and a new second loan on another of the borrower’s investment properties where the borrower had plenty of equity. We used the combined equity position of both properties to make the loan.