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Mortgage Investment Opportunities Since 1980



Mortgage Funds Often Fail During Recessions

July 3, 2020

We here at Blackburne & Sons would very much be in your debt if you were to forward this short lesson in trust deed investing to your accredited investors friends. Thank you!


Joke Du Jour

My wife said last night: "You treat our marriage like it's some sort of game.” Unfortunately, this cost her 12 points and a bonus chance.


There are two ways to invest in first trust deeds. You can either invest directly in a loan, or you can invest in a hard money mortgage fund. Hard money mortgage funds sound great.  Your investment is backed by a diversified pool of first mortgages, almost like a mutual fund. Great, right?

But there’s a problem. For the past forty years, real estate has crashed by about 45% every ten to twelve years. Examples include the S&L Crisis, the Dot-Com Meltdown, and the Great Recession. It’s been twelve years since the Great Recession.

Almost all hard money mortgage funds fail during these crashes, leaving the fund with no sponsor to make collection calls, to place forced-order fire insurance, to make sure the taxes get paid, to file foreclosure, to get the borrowers out of bankruptcy, to re-key and alarm the property, to renovate the property (almost all foreclosed property needs renovation before they can be sold), and to hire a reliable real estate broker to sell the property. If you are invested in a hard money mortgage fund when the sponsor goes bankrupt (almost all of them DO fail), you may only recover fifty cents (thirty cents?) on the dollar.

But why do the sponsors of these mortgage funds almost always go bankrupt? Answer:  They never charge enough for loan servicing and property management to make their payroll and to pay their rent. During good times, they pay their expenses and earn a profit from the loan fees they earn when they make new loans. When the real estate crash hits, however, new money stops coming into their funds. Their existing investors line up to withdraw their funds, and these withdrawals eat up any liquidity from loan payoffs. Since he has no money with which to make new loans and earn loan fees, the sponsor goes bankrupt.

In contrast, let’s suppose you invest directly in a hard money first mortgage. You were smart. You chose a lower-yielding, stronger deal. The world around you could crumble, but as long as your borrower keeps making his payments, what do you care? Even if your broker closes his doors, it's no biggie. You and your fellow investors own the loan. You can simply hire a private loan servicing company to service your loan. Voila!

Are you currently invested in a hard money mortgage fund? Why would I bet you dollars to donuts that this hard money shop was founded after 2007? Because almost every hard money fund in the country collapsed during the Great Recession! And it's about to happen again. It’s been twelve years since the Great Recession. If it’s not too late, withdraw every penny you have in any hard money mortgage fund.

Blackburne & Sons Realty Capital Corporation has survived for forty years because we fractionalize our deals. What this means is that we form a brand new syndicate for every loan, even deals as small as $100,000. This allows our investors to invest as little as $10,000 in a dozen different loans, allowing them to achieve diversity without the serious risk of a hard money mortgage fund. This also gives them the comfort, control, and security of owning each and every loan. It's the more prudent way to invest in first trust deeds.


Investing in first trust deeds involves substantial risk. Be sure to read the “Risk Factors” section of the Offering Circular carefully before investing. Foreclosed property almost always requires renovation, so be sure to maintain some liquidity. A substantial and prolonged decline in real estate values is possible.


Schedule a Zoom Meeting With Angela Vannucci




P: (916) 338-3232

F: (916) 338-2328

CA DRE #1425852 / NMLS #389465


Realty Capital Corporation

4811 Chippendale Drive, Suite 101

Sacramento, CA 95841

CA DRE #00829677 / NMLS #103430

Won’t you kindly forward this email to a few of your accredited investor friends?