In October 2008 a broker called Groupe 369 Corp. with a deal involving a 100-plus room hotel in the southwest area of the United States. The situation was a mess. The broker’s client had taken over the property because he was smart enough to plan for internet advertising to book his rooms months in advance, he decided he should drop the flag as his advertising was bringing in more business than the flag. However, the flag was dropped before the end of the contract as signed by the previous owner of the hotel and they were suing him and had a lien on the hotel for breach of contract. In addition, let’s just say our client’s credit was not so good.

But what we did have was a hotel that was in first class condition with excellent cash flow. Oh, I forgot to mention he was in default on his mortgage for not paying his property taxes and the current bank was telling the owner they were going sell his hotel at auction soon. So, our evaluation told us that while it would be rather a tight deal at 14% on a 12 month note, we were charging 4 points. The tax returns and the bank statements looked like the hotel could support the note. We ordered the appraisal, scheduled the site visit and we were off and running!

Groupe 369 Corp. issued our Letter of Intent and the client put up a $28,000 deposit. When we got the title, I was rather concerned about the number of problems on title. Actually, this can be a typical situation with many of our customers. The problem is solving these title issues in a short period of time. We can’t close a loan if a contractor with a $1500 lien is in a title position before us. We have to be in first position. Needless to say we dug in to try and solve all of the problems.

Actually, this is one of the most frustrating things to deal with; everyone we call on behalf of our client was screaming at us about things with which we were not involved. We try to maintain a calm demeanor, but often have to raise our voice: "Mr. X, I am merely trying to get you paid! What are you willing to settle for if you get your money in 30 days?" Often they say, "I don’t know I will have to call you back." I remember a couple of these contractors we reached on their cell phones and we followed up a couple days later to find out the phones had been disconnected! (I promise not to use any four letter words as this is a family-friendly organization. Use your imagination!)

To add to our frustration, we had numerous problems reaching the client during the underwriting process. We needed simple things like missing bank statements to justify the income and compare them to the tax returns, insurance statements, etc. Extracting these documents was like pulling teeth!

After 45 days of this run-around, we started getting panic phone calls from our client. It seems the bank had been calling him and informing him that if there was anything left out of the proceeds after the auction he might receive some of it. Meanwhile they informed him they were going to court to get a lock box put on the hotel. He was hysterical. Finally, he began cooperating.

The appraisal came in and it was fabulous! We were financing at 43% loan to value! This was a deal from the stars.

We were all excited after working so hard to get him to cooperate and then finally, to be so close to concluding the deal! But then it got weird. We started having trouble again in contacting the client. We called his home, his cell phone and his office, but no luck. We tried for several days. My staff and I had a meeting and decided that there was nothing we could do but wait for the client to contact us. The broker was in full panic mode, urging us to help this client.

Several days passed and finally we got a call from the broker. What he reported made us all very quiet. It seems that the client had borrowed a few million from his uncle at 6% and paid the hotel off in cash. We were all stunned.

I was traveling the next week, I remember drinking a coffee and eating a Danish in a Starbucks in San Francisco. On a whim I called him on his cell phone. To my surprise he answered and I asked him why would he pay us $28,000 if he could borrow the money from his family? In convoluted English he rattled on and ended by thanking me for my efforts. Still puzzled and unable to decode what he had told me, I wished him well.

A few months later I got a call from a local bank, they were trying to finance the hotel as it had been sold. I explained what part Groupe 369 Corp. had played in the deal and referred the bank to the appraiser.

Suddenly, I understood the former client’s garbled explanation. He did not want a loan to refinance the hotel, he wanted out!

David Kastner, President, Groupe 369 Corp.