1st AAA Commercial Mortgage Lender Databank

For California Residents Only

Getting over the Fear of Investing
in our Trust Deeds

It's scary to invest in trust deeds. You have so many worries. Can you trust Blackburne & Brown? How can you be sure your money will actually be invested in the trust deed that you selected? Is the appraisal legitimate? Will the borrower pay? What happens if there's an earthquake? What happens in the event of a foreclosure? Is the extra yield worth the extra risk? Let's see if we can't address some of your legitimate concerns.

First of all, this is Blackburne & Brown's 17th year in business. A copy of our audited financial statement is available upon request. You can order a Dun and Bradstreet report on Blackburne & Brown by calling 1-800-879-1392. The cost is only $75, and if you end up investing with us, we will even reimburse you for the cost.

Blackburne & Brown is 100% owned by George Blackburne III. Mr. Blackburne bought Dennis Brown out of the mortgage company 10 years ago, but the two friends remain partners in the law firm, Blackburne & Brown, Attorneys at Law.

Mr. Blackburne has been underwriting commercial mortgage loans for more than 17 years. He earned both his B.S. degree in finance and his M.B.A. from the University of Santa Clara. He graduated with honors from the University of Northern California School of Law and passed the Bar exam on his first attempt. Mr. Blackburne is a licensed real estate broker (#00623143), a licensed attorney (Bar#155132) and a Certified Real Estate Appraiser (certified by the National association of Real Estate Appraisers). Upon request, we will even provide you with a personal credit report on George and Cisca Blackburne.

We want to help you to get over the fear of investing with Blackburne & Brown. Towards that end, would you please put on your Sherlock Holmes hat for a moment? We want you to play detective. If you were going to sell an investment that you knew was lousy, would you arrange to make most of your money up-front, or would you wait around to be paid your money slowly over time?

In our case, Blackburne & Brown charges the least number of points upfront of any mortgage loan broker (hard money broker) in the state. Our typical loan fee today is only 2.5 points. The industry average is in the range of 5 to 8 points. Our low point strategy is inconsistent with a get-rich-quick scam. We are either well-intentioned folks or the world's dumbest con men. But our low point pricing does allow us to compete for financially stronger borrowers.
Blackburne & Brown makes the bulk of its income from loan servicing fees, which trickle in slowly every month. Because we service all of our loans, we have vested interest, consistent with yours, to only arrange loans likely to pay as agreed for the entire term. The cost of servicing one slow-pay account can easily eat up all of the profit from servicing five performing loans.
Our loan servicing income is now large enough to even "cover our nut" each month. As a result, we never have to sell some poor, trusting investor a lousy loan simply because we need to generate some fee income to make payroll. (If you spotted this as important, you've just won my respect.)

During the last recession, our industry lost dozens of fine mortgage companies that had been in business for more than 20 years. Many of these firms failed because they could not earn enough money from new loan originations during the recession to keep their doors open. Unfortunately more than a few of them looted their trust accounts in their final months in a desperate attempt to prop themselves up. In contrast to firms relying mainly on big fee income, our steady loan servicing income helps to keep us healthy, even through this last recession. Therefore we can be there for our investors to handle any problems.

One reason why so many hard money brokers went bad and stole money from their trust accounts is because many of them had either secretly guaranteed their loans (which is illegal), or they had foolishly put illiquid investors into second trust deeds. When they first stole from their trust accounts, they really only intended to "borrow" the money and pay it back later when the properties in foreclosure finally sold. When the losses proved larger than expected, they had to "borrow" even more money. We help avoid this dangerous situation by not advancing payments to or for our investors; nor do we guarantee our loans in any manner. Each investment must stand on its own.

Lastly, at Blackburne & Brown we operate very modestly. Our office is not fancy. In fact, our overhead is tiny when compared to many firms trying to put forward a more impressive front. Our low overhead, however, allows us to charge tiny points and thereby compete for stronger borrowers and less risky loans.

You should find it reassuring that Blackburne & Brown always uses an independent escrow company. When you invest in one of our trust deeds, you will send your check, along with written escrow instructions, directly to an independent escrow company. At no time does anyone from Blackburne & Brown ever get his grubby little paws on your money. Title to the loan is vested in your name, and of course you'll be listed as the beneficiary on both the title insurance and fire insurance policies.

Blackburne & Brown also always obtains an independent appraisal by a General Certified appraiser. This is the highest designation awarded by the State of California. If we do not know the appraiser well, we have the appraisal reviewed by another General Certified appraiser. We do not ask our appraisers to lowball our appraisals; but we ask them, when they are anguishing over the last 5% to 7% in value, to shade their valuations downwards for the sake of being conservative. A copy of the appraisal is always available upon request.

Will the borrower pay? Well, our typical borrower has good credit and a net worth in excess of $1 million. These rich borrowers come to us because our loan fees are tiny, our loans have no prepayment penalties and we do not intentionally torture them with paperwork. You have a far better chance of being paid promptly by a liquid, good credit, millionaire than by debt laden, insolvent homeowner with lousy credit.

What happens if there is an earthquake? "The doctor says you're gonna die." (Punch line from an old joke.) Earthquake insurance is economically infeasible these days, so we recommend that you never invest more than 1/6th of your trust deed portfolio into any one loan. You should also spread your portfolio out geographically throughout the state.

On the plus side, we only arrange first trust deeds, so the land should still be there. In addition, low-interest Federal government loans, which would be junior to your first mortgage, historically have been available to property owners to rebuild (although there is no guarantee). Lastly, because our borrowers are usually millionaires, we might even foreclose judicially and go after the borrower for a deficiency judgment.

In a foreclosure, Blackburne & Brown would handle everything. We have a philosophy that "the only time to show forbearance is on the day before the foreclosure sale, when we know that we have the borrower's complete and undivided attention." Therefore, we usually send a delinquent loan package over to our attorney for foreclosure on the 25th day after a missed payment (a mere 15 days after the 10 day grace period). In the event of a bankruptcy, we quickly turn the package over to the bankruptcy specialist to seek relief from the stay.

If a property comes back in foreclosure, our loan servicing contract automatically becomes a property management contract. We immediately assess the investors for some spruce-up money (all foreclosed properties need at least some sprucing up) and get the property painted, the carpets replaced or cleaned and the landscaping repaired. We have learned that a foreclosed property seldom sells or leases until it is fixed up.

As soon as the spruce-up is completed, the property will be listed for sale and for lease. One of the nice things about investing in a first mortgage is that in the event of a foreclosure, you and your fellow investors would own the property free and clear. You would be under no undue pressure to sell the property in a weak market. Instead, it might be possible and wiser to lease the property out and enjoy a partially-tax-sheltered positive cash flow until the market recovers .

Is the extra yield from trust deeds worth the extra risk? "Show me an investor who has lost money in trust deeds, and I'll show you an investor reaching for too high of a yield." It is not true that your trust deed investment will be safe simply because you are seeking only a 9% to 11% yield; but your chances of a successful investment are much, much higher. Lower rates (and lower points) attract financially stronger borrowers. Don't make the real estate collateral your first and only line of defense. Why not make a loan to a borrower who can actually afford to make the payments? It's just good, old fashion common sense.

Are trust deeds risk free? Of course not; but ask yourself this question: Is the first mortgage holder on your own home in any clear and present danger of losing his investment? You don't think so? Why not? Because you have a good-sized net worth, you have good credit, you can afford your mortgage payments, your mortgage holder is in first position, and your property has lots of equity in it -- right? Hmmmmm.

Is This a Suitable Investment?

Not everyone is a suitable candidate to invest in fractionalized first trust deeds from Blackburne & Brown. To be suitable you should have either (1) a net worth, exclusive of home, furnishings, and automobile, of at least $500,000 or (2) a net worth, exclusive of home, furnishings, and automobile, of at least $250,000 and a gross annual income of at least $65,000.

Fractionalized first trust deeds form Blackburne & Brown are not insured by the government in any way. In addition, investing in fractionalized first trust deeds does involve certain risks. Please be sure to read the Risk Factors section of the Offering Circular before investing.

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If you would like to talk to our investment department, please contact Mike Thurman
at 916-338-3232 or 800-606-3232 between the hours of 8:30 a.m. and 5:00 p.m. PST Monday--Friday.

Real Estate Broker
California Department of Real Estate -- License Number 829677