Walking away from Risk: A Loan We Declined

Not enough skin in the game and red flags from the beginning.

A mortgage broker recently asked us to make a loan secured by residential building lots in Salt Lake County, Utah.

Along with the request, he submitted some information of what he considered to be comparable lot sales. From our perspective, these were not necessarily comparable so we asked the broker to give us details of when these properties were acquired. He informed us that they were purchased by the prospective borrower earlier this year and shared the acquisition prices with us.

Red flags were raised when the requested loan amount was close to the purchase value for the properties. History has taught us that real estate rarely if ever appreciates at that rate. We consider one of the better indicators of value to be what the property was purchased for in an arms-length transaction if it occurred within the past couple of years.

Needless to say, we decided to walk away from this transaction.