MECHANICS 06
ASK THESE BEFORE
YOU FUND ANYTHING.
Diligence is not a feeling about someone. It is a list of questions with verifiable answers, asked before money moves.
Educational only. Nothing here is an offer or a recommendation to lend to anyone.
About the property
- What is the full address, and may I see the property or current photographs?
- What is the value today in its current condition, and who established that?
- Which specific sold comparables support that, and how does each one differ from this property?
- Was the valuation an appraisal, a broker price opinion, or an internal estimate — and who ordered it?
- How old is the valuation?
- What did you pay for the property, when, and from whom?
- What is the flood status, and what does that do to the buyer pool here?
- What is the written scope of work, line by line, and who priced it?
- What is the contingency, and what is it permitted to be spent on?
- What permits are required, and where are they in the process?
About the loan and the paper
- What lien position would I hold, and what else is or will be recorded against the property?
- Who prepares the loan documents, and will my own attorney review them before funding?
- Will there be a lender's title insurance policy, in what amount, and may I see the title commitment including every exception?
- Where do funds go at closing — to a closing attorney's trust account, or somewhere else?
- Who records the mortgage, and how do I independently verify that it was recorded?
- What insurance will be in place, what type of policy, and how is my interest reflected?
- Who is the borrower — an individual or an entity — and who signs? Is there a guaranty, and from whom?
- Is this a construction loan with a draw schedule, and who verifies completed work before a draw is released?
- What is the maturity date, and what happens on that date if the project is not finished?
- What exactly constitutes default under the note, and what notice and cure rights apply?
For the full context behind this, see Ben's published resources.
About the operator
- How many projects have you completed, and how many are active right now?
- Tell me about a project that went badly. What happened, what did it cost, and what changed in your process afterward?
- Have you ever missed a maturity date, extended a loan, or failed to repay a lender in full? What happened?
- Have you been a party to litigation related to real estate? A mechanic's lien? A foreclosure on either side?
- What reserves exist if this project runs over budget or over schedule, and where are they?
- How many other lenders are you working with, and what happens to this project if one of them does not fund?
- May I speak with a lender you have previously repaid, and with your closing attorney?
- Who does the construction, and are they employees or subcontractors? How are they paid, and how do you confirm that subs have been paid?
- What is your exit, what has to be true for it to happen, and what is the backup exit?
- What would you do if neither exit is available at maturity?
The questions that embarrass a bad operator
Four of the above do most of the work. They are the ones that cannot be answered smoothly by someone who has not done the work.
- Tell me about a project that went badly. Every real operator has one. An answer of nothing has ever gone wrong means either a very short history or a very short memory, and both are findings.
- May I speak with a lender you have previously repaid? An operator with satisfied lenders is usually glad to arrange it. Hesitation here is information.
- Will my attorney review the documents before funding? The correct answer is immediate and enthusiastic. Anything else ends the conversation.
- What happens if neither exit is available at maturity? This one separates people who have thought about the loan from the lender's side from people who have thought about getting funded.
Ask all four. Ask them plainly and then stop talking.
How to read the answers
You are not grading fluency. Operators who present well are common and presentation is not a credential.
Three things matter. Specificity — addresses, dates, numbers, names, documents, as opposed to categories and impressions. Verifiability — whether each answer can be independently confirmed against a public record, a document or a third party, and whether you then actually confirm it. Comfort with scrutiny — whether questions are welcomed or treated as an obstacle.
Pressure is the clearest signal of all. Urgency about a closing date, a suggestion that review will cost you the deal, or impatience with your attorney are not features of good transactions. Real ones survive diligence. They are also, frequently, improved by it.
And nothing on this page recommends that you lend to anyone. It is a list of questions. What you do with the answers is a decision for you and your own advisers.
Frequently asked
Questions people actually ask
What is the single most important question?
Will my own attorney review the documents before I fund anything. The answer tells you how the rest of the relationship will go, and it costs nothing to ask.
Is it rude to ask about failures?
No, and an operator who treats it as rude has answered a different question. Every real operator has had a project go badly. What matters is whether they can describe it, what it cost, and what changed in their process afterward.
Should I ask to speak with previous lenders?
Yes, and also with the closing attorney. An operator who has repaid lenders is usually glad to arrange a conversation. Reluctance is itself a data point.
How do I verify what I am told?
Through public records for ownership, recorded liens and recording of the mortgage; through the title commitment for encumbrances; through the closing attorney for how funds move; and through your own attorney for what the documents actually say.
What if I am pressured to move fast?
Treat urgency as a finding rather than a constraint. Legitimate transactions survive review. Pressure to skip diligence is the most consistent warning sign in the category.
Does asking all of this make me difficult?
It makes you a lender who does diligence, which is what a careful operator wants on the other side of a loan. The only people inconvenienced by these questions are the ones you should not be dealing with.
Make your next move
A year from now, what will you be glad you started today?
You don't need another promise that everything will be easy. You need something useful to learn — and a next step you're willing to take.