Sunday, August 21, 2016

Why can’t a borrower offer the same collateral to many lenders?

I got a question from a viewer in Prince Edward Island the other day. 

He had read my 2014 best-selling book, Invest Local, and had a question about preparing information for a lawyer in order to register security on a lending deal.

Many people who are contemplating investing in a small business via making a secured loan often wonder how they can make sure the borrower isn’t offering the same collateral to more than one lender.

I made this video to explain how registries work and give a brief history of how they came to be. Watch:

The PPSR registries (or UCC registries) allow you to publicly record the fact that a certain piece of property has been pledged as loan collateral.  They’re the most versatile registries because you can record a lien on almost any kind of property (outside of real estate.)

The system is so straight forward that many local investors register their own security using online services.  This is in contrast to real estate registries which are strictly the domain of attorneys because they are so complex and every jurisdiction is unique.

I’ve done dozens of deals where I’ve registered myself, using a third party service provider,  as a lender in a PPSA database.  I’ve also done many lien-searches when investigating the purchase of used vehicles or equipment.

It’s critical to learn how this works if you want to deal in lending or used equipment because a lender’s rights under a lien don’t go away if the property is sold. 

Simply put, if you buy an RV and there is an outstanding loan secured against it and the loan goes into default, the lender can still take it to satisfy the debt whether you bought it or not.

If you’d like to learn how to create high returns by making local private lending and lease deals, check out The Local Investing Academy starts in September.  For a quick introduction, read Invest Local.  It’s available from Amazon stores worldwide or as a .pdf here:

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Do you live in Toronto or the Maritimes?  I’ve got workshops coming up for Toronto in September on buying and selling businesses and in October-December in the Maritimes.  Book now

Thanks and I’ll see you next time.

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