| When you pool money from private lenders, you're | | | | you're in compliance |
| putting funds together from two or more different | | | | In order to be in compliance with your home state's |
| private lenders. | | | | securities laws if you choose to pool your lender funds, |
| You obviously need to look at doing something | | | | you'll need to find the proper exemption, filing or |
| different where your states paperwork is concerned. | | | | registration option, and comply with its requirements. |
| This means you will need to file paperwork with your | | | | The following is some general information on staying in |
| state and provide a disclosure document to your | | | | compliance with your states requirements. I have |
| potential private lenders. | | | | included this for those of you that have been asking |
| In Ohio, for example, we have what is known as 6(A)1 | | | | for additional SEC compliance information. |
| filing. This filing allow for pooling private lenders' money | | | | - When you use an exemption to bring in private |
| in running your real-estate investment business. | | | | lenders, you are making an offer and sale of a |
| This filing also allows advertising and unlimited private | | | | security. It's important to understand that an offer to |
| lenders. | | | | sell is usually treated the same as a sale when it |
| Remember, securities laws and regulations vary from | | | | comes to securities compliance. |
| state to state and the Federal SEC has its own set of | | | | - Two key concepts to understand when you sell |
| laws and regulations. | | | | securities are that there are exempt securities and |
| Here is a checklist on 'how-to' pool money. | | | | there are exempt transactions. Whether you're selling |
| Pooling Money Steps | | | | stock, equities, borrowing money, or debt, these are |
| - Pooling money occurs when you combine funds | | | | treated as securities. |
| from two or more different private lenders. | | | | An exempt security usually means a security issued |
| - You should use or form a new business entity. You | | | | by a governmental agency or authority. |
| should choose a corporation (which could be an | | | | - An exempt transaction refers to the sale of a |
| S-corporation) or an LLC. Some states have different | | | | security not issued by a government agency that has |
| filings available depending upon whether you have a | | | | been given an exemption under state law (or federal |
| corporation or an LLC, and LLC's are sometimes | | | | law) because of the nature of the security and how |
| treated as partnerships. Most states won't allow you | | | | it's sold. |
| to pool money when you're operating as a sole | | | | - Many of my students are basing their compliance on |
| proprietorship or DBA. | | | | the exemptions in their states that are similar to the |
| - You cannot use your state's exemption for | | | | one in |
| real-estate transactions, similar to Ohio's 3(H) | | | | Ohio found under 3(H): |
| exemption, when you pool lenders together. You can | | | | Ohio Revised Code, Chapter XVII, Title 1707.03(H) The |
| not use this particular exemption because there is no | | | | sale of notes, bonds, or other evidences of |
| paperwork involved. You must "upgrade" to a higher | | | | indebtedness that are secured by a mortgage lien |
| exemption which allows pooling. All states have similar | | | | upon real estate, leasehold estate other than oil, gas, or |
| paperwork levels. | | | | mining leasehold, or tangible personal property, or which |
| - These filings require you to fill out paperwork, | | | | evidence of indebtedness is due under or based upon |
| informing the state regulator about your business and | | | | a conditional-sale contract, if all such notes, bonds, or |
| what you're doing. It usually requires you to disclose | | | | other evidences of indebtedness are sold to a single |
| information to your potential private lenders, which is | | | | purchaser at a single sale, is exempt. |
| for your benefit as well as your private lenders' benefit. | | | | - Remember, these are still securities, and the sale of |
| - You'll pay a fee to your state regulator when you file | | | | these securities can be exempt under securities laws |
| your paperwork. | | | | in Ohio. Compliance with the offer and sale of these |
| One of the things I've taught my Real Estate students | | | | securities is still required. |
| and continue to stress is that you shouldn't be pooling | | | | - Some states may offer you more than one choice, |
| money from private lenders unless you make sure | | | | so you'll want to evaluate those choices. |