Operations
'USA Capital', the hard money lender USA Commercial Mortgage Co.(USACM), was a Las Vegas, Nevada based mortgage broker owned by Tom Hantges, Joe Milanowski and Paul Hamilton. Affiliated with the lending/brokerage activity at USACM was a management company, USA Securities, and two funds, the First Trust Deed Fund and for Nevada residents only, the Diversified Trust Deed Fund.
There were two general categories of investors;
- fund investors who pooled their cash with others and allowed USACM to select which investments would be made and
- direct lenders who desired to evaluate projects for themselves before investing in an individual loan.
Though there were instances of a single direct lender funding an entire loan, the vast majority of loans were funded by many entities, which included the two Trust Deed Funds themselves. Typically loans ranging from up to $3,000,000 to $30,000,000 would be funded by between 30 and 300 persons, each of whom was a fractional beneficiary of the promissory note.
The loans brokered by USACM offered investors high interest rates relative to the prevailing safe rates available on CDs and Treasury Notes. Publicly at least, USACM maintained a nearly unblemished record of stability and integrity for years and advertised that "no investor has ever lost a penny of principal."
When borrowers approached USACM in need of money, USACM would negotiate hard terms. This included hefty upfront origination fees and loan points, ongoing servicing and extension fees, and back end equity participation or success fees all of which were payable to USACM. The retail investors received interest only.
Very often loans were made on land or projects that were very early in their development, entitlement or marketing stages. In most cases, these properties did not generate rental income so sales of units, or the refinance or sale of further entitled land was required to pay the investors back. Impound accounts sufficient to pay interest for the term of the loans were generally funded with the investor's own money and as a result repayment of most loans was almost entirely dependent on continuing high demand for condominium conversions and stable or accelerating demand for builder ready land.
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