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Fractionalized Loan

For larger loans, we “fractionalize” the loan. This is the formal term that describes having more than one investor contribute money to make the loan. As an example: $700,000 loan amount and 2 investors each invest $350,000. Another example: Same loan amount of $750,000, but Investor 1 funds $300,000, Investor 2 funds $200,000, Investor 3 funds $200,000 and the final Investor funds $50,000.

Here are some of the pros and cons of “fractionalization” from the Investors viewpoint.

In general, it is the current LTV ratio, which is the measurement of the maximum loan amount.  However, in a construction project, we measure the future value (i.e., after the construction/rehabilitation is completed).  That future value is allowed to be used as the measurement if the following conditions are met:

(For construction or rehabilitation loans, the term “current market value” may be deemed to be the value of the completed project if the following safeguards are met:

(A) An independent neutral third-party escrow holder is used for all deposits and disbursements.

(B) The loan is fully funded, with the entire loan amount to be deposited in escrow prior to the recording of the deed or deeds of trust.

(C) A comprehensive, detailed draw schedule is used to ensure proper and timely disbursements to allow for completion of the project.

(D) The disbursement draws from the escrow account are based on verification from an independent qualified person who certifies that the work completed to date meets the related codes and standards and that the draws were made in accordance with the construction contract and draw schedule. For purposes of this subparagraph, “independent qualified person” means a person who is not an employee, agent, or affiliate of the broker and who is a licensed architect, general contractor, structural engineer, or active local government building inspector acting in his or her official capacity.

(E) An appraisal is completed by a qualified and licensed appraiser in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP).

(F) In addition to the transaction documentation required by subdivision (i), the documentation shall include a detailed description of actions that may be taken in the event of a failure to complete the project, whether that failure is due to default, insufficiency of funds, or other causes.

(G) The entire amount of the loan does not exceed two million five hundred thousand dollars ($2,500,000).

Developer & Borrower

We work with a well-established real estate developer with over 25 years of experience to maintain consistency, reliability and in-depth knowledge of the market. You can speak to Mr. Low about any project, however, all loan conditions, practices, terms, and conditions must be addressed by ETrust Deeds. You can review Mr. Lowis site at

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