Frequently Asked Questions

Q: Do private mortgage investments belong in my portfolio?
A: Not many investments can dependably generate such strong returns, and few other investments have an asset like real estate as a “backstop” providing a very well protected downside.  The key, as in any investment strategy, is to find a good Manager.  Consistent success over an extended period of time is, of course, no guarantee of future performance, but it certainly would give some indication of what you can expect.  Whether private mortgage investments are right for you will depend upon your time frame, your risk/reward expectations and your anticipated need for liquidity.  Furthermore, private mortgages have stable returns and fit well within a portfolio of stocks, bonds and real estate.  Adding these to a portfolio will make the returns of the total portfolio more consistent. When evaluating any potential investment, the advice of a professional investment advisor is helpful in assessing the role of private mortgages in an otherwise liquid investment portfolio.

Q: How safe are private mortgage investments?
A: There are inherent protections unique to mortgage loans which can significantly limit any downside risk when carefully implemented in the transaction’s structure and in the mortgage documents.  The biggest possible risk, of course, is that for one reason or another, the Borrower stops paying the mortgage and at the same time the value of the collateral diminishes.  To offset this risk factor, in most cases there will also be one or more personal guarantees.  In situations, for example, where a property is being rehabilitated, an interest reserve may be established to fund the interest payments during the time that the property is being renovated and not producing any cash flow.  The key is evaluating the notes and the Borrowers very carefully and then anticipating (and incorporating into the note purchase agreements and other documents) ways to offset the risk of a non-performing loan.  Keep in mind that the mortgage documents assess late fees and default rates of interest that serve as powerful disincentives for Borrowers to make any late payments or to default on their loan obligations.  If, however, the transaction has been structured properly, there will be plenty of equity in the property to protect the Lender.  As in any investment opportunity, the quality of the management is of key importance.  You want seasoned professionals in charge who have many years of experience successfully originating and managing a portfolio of private mortgages.

Q: Can I invest retirement money (IRA, SEP, pension funds, etc.) in a Trust Deed?
A: If you hold a Self-Directed IRA with a qualified trust company, you can choose to invest your IRA funds in a Trust Deed. If your IRA is not Self-Directed, and/or is not held with a qualified trust company, you may be able to roll your IRA funds into such a plan through third-party custodians. There are many IRA custodians across the US that handle self-directed IRA’s and are familiar with this type of investment. Once you have the right type of IRA plan, investing your retirement funds in a Trust Deed is easy. We will be happy to assist you in this process. Also, we can refer you to institutions that will accept qualified funds and allow you to self direct those funds into trust deed investments. Tax-deferred investors (IRA’s, Pension Plans, Keogh’s and the like) should speak with their financial advisor about any possible impact of UBTI (Unrelated Business Taxable Income).

Q: Who handles my money?
A: You do.... all closings take place at a reputable title company and all funds are sent directly to them. In fact, HanoverMC never touches your money.

Q: How liquid is my investment?
A: Trust Deeds are semi-liquid and can be sold, traded or Investors can borrow against the note, using it as security.

Q: How am I secured?
A: Each loan is secured by a deed of trust (a mortgage) that is a lien on real property. The deed of trust is security for the repayment of the loan. We execute an assignment of the Beneficiary's interest in the deed of trust (the document which secures the promissory note on a particular property) to the investor and that assignment is recorded in the county in which the property is located. This perfects the investors' security interest in that property.

Q: What is a Trust Deed and Promissory Note?
A: A trust deed, like a mortgage, is recorded by the County Recorder's Office in order to make real estate collateral for a loan. A promissory note is a written promise to pay, signed by a borrower. It states the amount owed the rate of interest and terms of payment, including the due date and any special provisions.

Q: Are these investments in 1st position on the property?
A: We do offer 2nd & 3rd trust deed investment positions. You will be able to choose which loans you personally would invest in.

Q: Why would somebody pay 11%, 12% or more for a loan?
A: There are innumerable reasons why somebody cannot, or doesn't have the time to qualify for a conventional bank loan. It should be noted that individuals who cannot qualify for a bank loan can generally be regarded as higher-risk borrowers and there is an increased risk of default on the loan. However, we tend to be conservative in our underwriting, and consequently, avoid those loans that we believe involve an unacceptable level of risk for you.

Q: What is the level of exposure (i.e. loan to value ratio)?
A: The actual percentage on a given loan will depend on a variety of factors including, but not limited to, the condition and location of the property, its' marketability, the income it generates, the borrowers' credit, the purpose of the loan, and other factors. The actual loan to value will always be disclosed in advance to the investor. The value of the property will be determined either by a BPO, independent appraisal or the county tax assessed market value.

Q: What are the costs to me?
A: The borrower pays all of the loan fees and other costs associated with the origination and servicing of the loan. Additional costs, however, will be incurred by the investor if the borrower defaults on the loan. We outsource the servicing function to a third party sub-servicing company. See Investment Management.

Q: How does HanoverMC earn its fees? HanoverMC earn its fees from two areas. (1) Upfront points paid by the borrower and (2) Yield participation (a percentage of the interest payment) on some of its loans. Participation on the yield is typically 1.9% on the note rate. For example we may structure a note rate of 11.9% to the borrower, but pay a sold rate of 10% to the investor.

Q: Do I own the entire investment or am I investing in just a portion of it?
A: From time to time, we sell fractional interests in a single trust deed to multiple investors.

Q: What are the dollar amounts of the investments?
A: Loan sizes range from $50,000 to $500,000 with an average loan size of approximately $225,000. Please let us know the size range that is appropriate for you.

Q: How long is the term of the investment?
A: Maturity periods range from 3 months to 5 years. A typical loan will pay off in 18 to 24 months.

Q: How often will I receive interest payments?
A: Typically, payments are collected and paid monthly; however, it will depend on the note purchased.

Q: How are the payments collected and how are the loans serviced?
A: Hanover Mortgage Company out-sources servicing functions to a sub-servicer offering servicing, debt preservation, collection, and default processes where all the debt collection and servicing is administered.

Q: How and when do I receive payments?
A: Investors can choose to have payment, in the form of a check, mailed directly via the United States Postal Service or payments can be deposited directly into their bank account via ACH.

Q: What happens if the borrower’s payment is late?
A: Borrower is accessed a late fee if the payment is received more than 10 days after the due date. The late fee, a charge of 10%, is assessed and due with the following payment. This fee is divided equally between the investor and the sub-servicer.

Q: What happens if the borrower stops making payments?
A: When payments are 41 days past due, with the investor’s permission, the loan goes to default management and foreclosure proceedings begin. To summarize, if a borrower doesn't pay it is the investor's decision as to when to begin foreclosure. There is a specific legal process a lender has to go through in order to foreclose and take a property back. From the time a Notice of Default is filed, to the time an investor would actually own the property, can range from 4 or 5 months to 18 months or more. Much depends on what legal course of action a borrower takes. It is never anyone’s desire for someone to lose a home through foreclosure. At Hanover Mortgage Company we will assist the property owner to get back on track, while at the same time protecting the interests of our investors. Typically, the property owner refinances or sells the property (paying off the investor loan) or brings all past due payments current before the property sells at a foreclosure auction. Although the borrower pays all default management fees, the upfront cost is advanced by the investor.

Q: How can I learn more about whether private mortgage investments are right for me?
A: Every investor has unique financial goals and investment timetables. That is why we suggest that you discuss your investing preferences with one of our investor specialists. Our business practice is to completely understand how you view investing so that we can recommend loans that will allow you to feel comfortable, secure and satisfied. You can reach us at 800-325-1309.

Good Deeds You Can Trust™