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Private Lending (15) – Crazy Lender
I usually don’t complain about lenders, after all, without lenders, the unused quota every year would go to waste, and without us, lenders wouldn’t get double-digit return. But there’s one encounter that’s still fresh in my memory, I’ve only experienced it once, and I hope to never experience the same thing again 😂
This person was introduced by other lenders, and we thought they should be a normal person, not too extreme. We followed the usual procedure, and explained how each step works. Generally, our principle is to be straightforward and factual, so the funds go directly to trust accounts, lawyer accounts, or borrower accounts. This way, we’re not a middle man and/or risk factor. But this family still persistently asked many irrelevant questions. I found it strange, so I started asking them some background questions. It turns out, the person also did private lending in their home country, and also accepting some gold and silver jewelry as collateral. The whole explanation was very vague, but one sentence stuck with me. The person said, “The core skill of this business was collection.” At that time, I was still young, so I thought, oh, that makes sense, they’re experienced lenders, they’ve probably encountered a lot of pitfalls and asked a lot of questions. After patiently explaining the process here and explaining that collection here is really procedural, and everything is based on contracts and legal regulations, the other party did start to do a few deals in the end, and everything went as usual.
But when one of his private lending deals matured, and the borrower hadn’t repaid it yet which was very normal in this business, he went crazy overnight. This is actually normal; out of the hundreds of private mortgages we’ve done, hardly any have been repaid on the due date. Either they’re repaid early or delayed, or they go through the power of sale process, so the contract includes standard repayment fees, such as penalties for early repayment, how delayed repayment penalties are calculated, and how auction process penalties are calculated, as long as the LTV is controlled well before lending and the process is followed.
But then, wow, when I woke up, my teammates were blowing up my phone, saying the lender was threatening them with text messages, saying they knew everyone’s addresses, demanding repayment, otherwise they’d send someone over, and the whole family was going crazy sending messages.
This was indeed the first time I encountered this. Communication should at least be two-way, so I replied and explained the original contract and the process here again, as well as the possible outcomes and probabilities of each scenario. I guess the other party didn’t listen to a word, they just wanted repayment anyway. I sighed; they really didn’t understand the business, the money didn’t even go through our accounts, and they hadn’t even figured out who is the borrower. I went to my lawyer, and my lawyer said, this might be a cultural difference, maybe this is how it’s done in other countries which is why they were behaving this way, do you want to call the police?
I thought about it. First, the LTV of this loan is very low, even if it goes through the auction process, the principal and interest plus a bunch of penalties will all be paid back. Second, the borrower’s refinance at the bank was almost complete, and the disbursement is just a matter of days, we’ve seen the documents, it was real, it’s just unfortunate that the lender won’t listen or look, they’re just in a crazy mental state. Any normal person who’s willing to look at the documents and the facts and analyze them should be able to come to the conclusion to patiently wait for the loan to be paid back in a few days. So for such a simple matter, calling the police wasn’t really worth it. I told my lawyer, how about this, propose to them to sell this loan to me, I’ll pay according to the contract, but all the penalties when the borrower repays will be mine.
The other party agreed readily, without even negotiating the penalties, so it seems they really didn’t understand the business and wouldn’t listen to logic. After signing the contract, they sent me a long message, scolding me and then saying they’d blocked me 😂
Finally, things calmed down, and about a week later, the borrower’s bank disbursed the loan, and my private loan was repaid according to the contract, only a few days later, and I received all the penalty as well.
After all the hustle, I became interested. I’m always curious about things I haven’t seen before, so I looked into this industry in their homecountry, and it was eye opening for sure!
After reading a series of in-depth reports, I finally understood what the person meant by “collection” 😂 indeed, the core skill of doing this back in his home country was collection because the legal auction process, outcomes, and fees are not very clear, so the typical practice of “collection” is not a legal process but a “manual” princess performed by hired “professionals”. The rest you can let your imagination run wild. And surprisingly, “collection” itself has become a large industry on its own, sometimes the whole village is doing this. What really blew my mind is that they even obtain a certain certificate to perform “collection”! What certificate? Proof of aids. Can you believe it? Debt collectors with this often just need to stand there and show this “certificate”, then the borrowers would freak out and repay right way. It all sounds crazy to me.
But the story doesn’t end there 😂 Many, many years later, one day my phone was blown up by my teammates again. When I asked, they told me this lender had appeared again, giving likes to our social media content left us various messages asking if we have any deals for him to lend on 😂
I guess they have finally learned how private lending works here lol
Next time, let’s talk about legal pitfalls we have come across. This is an industry where even after doing it for ten years, you can still misspell the names of lenders 🤦🏻♀️