Financial advisor Barry M. Kornfeld, based in Boca Raton, Florida, is co-owner of First Financial Tax Group. The firm concentrates on tax, estate and income planning for individuals of retirement and pre-retirement age. Barry Kornfeld and his team have made a particular study of the value of more conservative financial vehicles, including first position commercial mortgage notes, or FPCM’s.
An FPCM is widely considered one of the safer fixed-income alternatives when planning finances and seeking monthly income. Also called secured bridge loans, FPCM notes offer the potential to avoid the uncertainties of the markets in stocks and bonds. Additionally, an FPCM note typically earns a higher rate of interest, currently an annual percentage yield of 6 percent. The interest is paid out monthly, typically via direct deposit into the client’s bank account.
In today’s tight credit market, many potential commercial borrowers are unable to secure long term mortgage capital in an expeditious fashion. This is how an FPCM loan can help. It serves as a “bridge” over a temporary lack of capital funding sources for these borrowers. These borrowers accept the easier terms and higher interest rates of an FPCM when they need it to purchase or improve a property, then pay it back using the resulting new income streams.
Secured by a lien on specified real property, the FPCM loan is thoroughly vetted, including through a title search. As its name states, “first position” means that the holder of an FPCM is the first creditor in line for payment should a borrower default on a loan. As an additional and vital safeguard, the mortgage company that First Financial Tax Group sources its FPCM transactions through, contractually obligates itself to make the payments to lenders, even if the underlying property owner, does default. They will do this to protect their own second interest, which is subordinate to our first position, in the exact same property that we are involved in. In other words, they have skin in the same game, also, and this makes the transaction safer all around for everyone involved.