Cutthroat Private Lending

“I don’t want to be cutthroat,” she said sadly.

Private Lender - Loan in Default - Enforcing Contracts

The topic under discussion in the virtual meeting was that a borrower was in default on a real estate loan, and the woman owed the money didn’t want to be a jerk about it. Her emotions felt heavy to me, and she sounded like she was experiencing a combination of desperation with tremendous guilt.

“Sometimes rocks fall out of the sky,” is the statement I use to remind us that things often don’t go according to plan, even when our back-up plans have back-up plans… And mine generally do – have back-up plans to the back-up plans. For this private lender seeking solutions, rocks fell out of the sky.

I interrupted the virtual meeting rather forcefully with my voice as is often necessary with virtual meetings, and spoke above the group.

“I heard you say that you don’t want to be cutthroat and I want to set you free from that. When you made this transaction, did you and the borrower sign documents stating what would happen if the loan went into default? The promissory note and the mortgage or the deed of trust?”

Yes, they had.

“Then you do what those documents state that you would do if this happened. Because doing what you said you were going to do when you said you were going to do it is a mark of high integrity – not a lack thereof.”

I’m a private lender, too, and several of the loans I made in good faith are currently in default, are about to be in default, or are currently in collections efforts after default action.

In fact, I just got out of a meeting with a borrower whose balloon payment is due in a few weeks and they don’t have the funds to repay me. The real estate market shifted, things didn’t go according to plan, or according to back-up plan, and the borrower and I are seeking solutions together.

This is prior to default, and an act of prevention. This is not post-default or an act of desperation.

I am grateful that we are working together to figure it out, but if we were not, I would do what I said I was going to do in those documents we signed four years ago. I might still if we can’t agree on a resolution by the due date. You see, before default, you have a much wider range of potential mutually positive outcomes. Waiting for emotional reasons paints us into a corner where choices become fewer and fewer and collaboration becomes less and less likely. I have learned the hard way -- repeatedly – that a surefire way to lose trust and authority, and to be taken advantage of, is to wait.

Hope and optimism are not a plan.

I know that we all know that intellectually, but sometimes our hearts get ahead of our brains. Please take it from someone who has lost a lot of money by being “understanding”: I have always wound up doing exactly what I should have done when the default started, except doing it from a worse position because I waited.

Enforcing the terms of an agreement isn’t an act of malice; it is a baseline commitment to professional boundaries. If you find yourself delaying tough conversations because of difficult emotions, remember that passive waiting will almost certainly compromise your positioning.

You’re not a cutthroat. You are a person who does what they said they were going to do when they said they were going to do it.

That, my friends, is integrity – and is not cutthroat.

If you find yourself delaying tough conversations because of negative emotions, remember that waiting paints us into a corner where choices become fewer and fewer. Let's set up the framework to protect your Capital of Self. Sign up at TheGeniusCultivator.com/Coaching.