Complaint Review: Blackburne & Sons Realty - Sacramento CA

Quick Summary: 

Blackburne & Realty Capital Corporation is getting roasted here like we are a bunch of evil actors, out to steal our investors’ money.  Helloooo?  We have been in business for almost 40 years.  All but three or four other hard money shops crashed and burned in those 39 years, and the combined losses to their investors were in the billions of dollars.  Many times, these competing sponsors flat out looted their trust accounts for tens of millions of dollars.  In contrast, we successfully led our investors through the S&L Crisis, the Dot-Com Meltdown, and the Subprime Mortgage Crisis.  We are not bad buys.  We’re the best of guys.  

Unfortunately, we had a deal where a MAI appraiser did a terrible job appraising a golf course.  Our investors are poised to take some painful losses, and they’re furious because we didn’t catch the M.A.I. appraiser’s mistake.  We’re pretty good here at Blackburne & Sons, as evidenced by our very long history, but we’re not smarter than an M.A.I appraiser when it comes to appraising a specialized property, like a golf course.

The people who defamed us in this report refused to pay their share of the cost of protecting and operating the course after the foreclosure, so they were just completely wiped out.  Those investors who behaved responsibly after the foreclosure will recover a material portion of their investments, and we will continue to pursue damages from the appraiser and the personal guarantors for the short-fall.

A More Detailed Response:

This is George Blackburne III, the old attorney who founded Blackburne & Sons Realty Capital Corporation almost 40 years ago.  Since inception, we have watched over 1,000 competing hard money shops go out of business.  Many of these sponsors looted their trust accounts for tens of millions of dollars.  Many hard money shops made second mortgages before the S&L Crisis.  Their investors were slaughtered when real estate collapsed by 45% in 1980, and the underlying first mortgages foreclosed.  Blackburne & Sons never made second mortgages, so our investors survived - bloodied but largely intact.

Then came the Dot-Com Crash.  Once again, most of our existing hard money competitors went out of business.  With no one to watch over their investments, their investors lost hundreds of million dollars, as the attorneys, CPA’s, receivers, and bankruptcy trustees took the best part of the income and principal.  Why did our competitors go out of business in 2001?  They depended on fresh money with which to make new loans.  When investors got frightened after the dot-com stocks collapsed, they stopped investing in new trust deeds.  With no money with which to make new loans and earn new loan fees, most hard money shops lacked sufficient income to keep their doors open.  How did Blackburne & Sons survive?  Since Day One, we have always charged a loan servicing fee large enough to keep our doors open.  Once again, with a 45% collapse in real estate values, our investors got painfully bloodied; but they survived.

Then came the Subprime Mortgage Crisis, when real estate once again crashed by 45%.  In the years leading up to the crash, our hard money competitors made insanely-risky land development loans and earned huge loan fees.  I had one hard money buddy who bought a jet, a Ferrari, and a motorhome that cost more than my home.  To this day I live in a $335,000 house, which is a gorgeous home in Indianapolis, near our one grandchild.  Their investors lost billions of dollars.  How did Blackburne & Sons survive?  We never made land development deals.  We just plugged along making small permanent loans on standing commercial properties.  And yes, when real estate crashed by 45%, many of our investors got hurt.  But those of our investors who had invested in our smaller, lower-yielding deals did surprising well.  In 2009, almost all of our 125 commercial loans were under water, but most of our borrowers kept making their payments. 

Let me make this clear.  You can lose BIG money when investing in first trust deeds, and the fastest way to lose big money is to try to earn a huge yield.  We don’t have a single investor who has not seen my warning on many occasions, “I would personally never invest in any trust deed with a double-digit yield.”  I have published Blackburne’s Law on dozens of occasions.  “A portfolio of 8% to 9% loans will outperform a portfolio of 11% to 12% loans over a seven year holding period.”  But few investors will listen to me.

The person writing this complaint more than likely just got wiped out in a 12% deal, not because he or she was cut off by a senior foreclosure or not because the property was without any value, but rather because (we assume) he or she failed to pay his or her share of the renovation costs, foreclosure costs, and negative cash flow on a property that will eventually sell for more than $1.5 million.  Folks, our investment documents are perfectly clear.  If you fail to pay your share of the property’s costs, your interest in the deal is 100% subordinated to those investors who responsibly step up and help to carry the property until it is sold.

Imagine being a teacher and having someone anonymously post on the internet that you could not be trusted with children?  How could you ever clear your name?  Folks, I am literally an Eagle Scout.  So are both of my wonderful sons.  I have been married to the same lovely lady for over 35 years.  I drive a 13-year-old car that I keep clean and well-maintained.  I take home less money than your CPA, and now my 40-year reputation is being slammed. 

Now Angela, my number one, will respond specifically to this wiped-out investor's complaints. 

Blackburne & Sons has been known to “break mailboxes” with our due diligence packages. In fact, I accept many calls with moans and groans over the amount of paperwork provided as part of those due diligence packages. A typical package will include, but is not limited to, a full copy of the appraisal, environmental report (on commercial properties), borrower information and full financials on borrowers/guarantors (as applicable to that specific transaction). To make a statement that our office did not (and does not) do our due diligence is just not true.

It’s also important to note that all of these due diligence materials are provided to investors prior to investors signing any documents and sending in funds to complete the investment. Investors are expected to review all of the information provided, ask any questions they may have and only then proceed if they are accepting of the terms and information provided. 

To place sole blame on our firm for acceptance of a MAI appraisal, is failing to take any responsibility for the lack of review of the appraisal themselves. Blackburne & Sons does review appraisals obtained for any obvious concerns, true. However, never have we stated that our office is an expert in valuations in any state/area, or for any type of property. This is the reason why independent appraisals are obtained by licensed appraisers as part of the due diligence process, and then included in materials to investors prior to subscription. It is as assumed responsibility of each investor to review the information/appraisal provided and make an educated, informed decision whether to proceed or not. 

In addition to the due diligence materials, the Offering Circular and other offering documents are provided prior to investor(s) completing a subscription. It is the Loan Servicing and Tenancy in Common Agreement (“Servicing Agreement”) that details the consequences if investors fail to pay their share of any assessment issued. Note that investors are provided 60-days to cure before the subordination is permanent, so there is adequate warning prior to a subordination becoming permanent. 

It should also be noted that each investor attests prior to investing that their investment does not exceed 10% of their net worth (exclusive of home, furnishings and automobile) and have at least a net worth of $250,000 plus an annual income of at least $65,000 or a $500,000 net worth (all exclusive of my home, furnishings and automobiles.  Blackburne & Sons has denied acceptance of subscriptions from investor’s if they do not meet these requirements, and have even removed investors from our mailing lists if qualifications cease to exist. This is for the protection of the investors, given the outlined risk in the offerings, not for the benefit of our firm. 

As to the Blackburne & Sons fees for our services, these too are clearly outlined in the Servicing Agreement. They are set prior to the loan being originated, and each investor has the right to question them and/or to decline to invest if these fees are deemed unreasonable. 

Finally, the statement that Blackburne & Sons has a history of mistakes is just not true. Now that does not mean we are perfect. But, in my 14+ years with Blackburne & Sons, I can honestly say that this firm operates on integrity and transparency. I would not still be here grinding each and every day for our investors if it wasn’t. Each offering is serviced based on the terms in respective Servicing Agreement signed at the time the subscription is completed. And, each offering is handled with the investor’s best interest in mind. Does each deal turn out exactly as anticipated? No. That is the risk of private-money investing (which is clearly warned and outlined in the Offering Circular), but it is the honesty and integrity that is in our company’s culture that retains investors over the 40+ years of business. 

If you read this and would like to discuss more about our firm and what we do, please contact me at [email protected] to set up a call. I would love to have the chance to speak with you.