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Patch of Land Introduces New Offering Structure to Help Provide More Investor Protection

The following is not legal advice and is intended to educate our investors. As always, investors are encouraged to perform their own due diligence and consult with their personal legal, financial, and tax advisors.

Last September, Patch of Land announced that we were working on a new and improved legal structure to provide more protection for our investors. We asked you, our loyal investors (and for some of you, part owners) for your comments, and many wrote in with ideas, suggestions, and requests.

What we overwhelmingly heard was this: our investors wanted an increased security and protection on their investment, but they also wanted a painless and frictionless investment process. For all of you who expressed a strong preference in dealing with 1099s instead of K-1s at tax time, we heard you loud and clear.

We took all your comments, went back to the drawing board, and devoted considerable time and thought in revamping our investment product, which we’re delighted to present to you today.

 

Patch of Land Offerings 2.0

While the platform will still offer investors borrower payment dependent notes (which means 1099s), we’ve taken steps to increase investor confidence and security in our new offering structure. These protections will be available for all projects offered after Monday, June 1, 2015. Here are the main highlights:

  • Bankruptcy-remote design: All new offerings will be issued from one or more special purpose entities (SPE) designed to be bankruptcy remote. SPEs are business entities formed in a manner designed to minimize the risk of becoming a debtor in a bankruptcy case. This means that if something happens to Patch of Land, Inc., the SPE is designed so that its obligations are secure even in the event of the bankruptcy of Patch of Land, Inc. Except in certain cases, all borrower notes and investor notes will be held by one SPE.
  • Indenture Trustee: We’ve signed an agreement with an indenture trustee that steps into our shoes should an event of default ever occur. They will make distributions to investors should we ever file for bankruptcy, dissolve, or have some other event of default.
  • Secured Investment: All of our offerings will now be directly secured as to a pledge of collateral only as to the underlying borrower note, mortgage and related cash flows to the trustee. To be clear, the collateral is not pledged directly to an investor as a holder of the borrower payment dependent note, but is instead pledged to an indenture trustee under which investors benefit as a note holder.
  • Perfection of Security Interest: In order to perfect our investors’ security interest and ensure the priority of that perfected security interest, the secured party must take possession of the promissory note. Therefore, a trustee will take and maintain possession of the borrower note.
  • Public Notice: And lastly, to perfect the security interest and put third parties on notice, we have filed a UCC-1 that puts any potential third party creditors on notice that the underlying borrower loans have been pledged to the trustee for the benefit of investors.

Aside from the changes mentioned above we have clarified a few other points about the offering:

  • Interest Rates: Are calculated on a simple interest basis based on 360 days.
  • Fees: More clarification on any fees that may be charged to the underlying borrower or investor
  • Disbursements: In order for us to provide the best service and accurate numbers, we disburse interest payments on the 15th day of each month.

Previous Offerings to Reap Benefits of New Offering Structure

Over the next two months, we will be transferring all our previously funded borrower loans, as well as the investor notes associated with each of those loans, into the SPE mentioned above. This allows investors to enjoy the benefits of our new offering structure even for investments made prior to our new offering structure. Look for a notice under your “My Accounts” tab in coming weeks!

All in all, we believe this new product structure will increase the security of our investors’ investments and their confidence in investing on our platform. We’d love to hear your thoughts and answer any questions you might have.

 

Release of our sample offering documents

Understanding the nature of any of your investments is extremely important. While we do not advise any of our clients on any investment opportunity in particular, we encourage investor education generally so that our investors can make educated decisions or have their advisors make educated decisions for them.

New offering structure downloadAs part of our philosophy on transparency, we are the first real estate crowdfunding portal to release a template of our new offering documents publicly, so that investors may take time to understand the nature of their investment and consult their financial and legal counsel. Please remember that these documents are only a sample template and that we may change and update the document from time to time in our discretion. Investors are always encouraged to read the full documentation on their particular investment prior to investing.

As always, we are happy to take comments on these documents so that we may continue to improve and iterate our product offerings.  Feel free to leave a comment below, or be heard through our new Patch of Land Ideas Portal where you can let us know how we can build a better Patch of Land for you.



If you want to learn more, take a look at some of the most commonly asked questions we receive about real estate crowdfunding on a daily basis and find out why so many people are crowdfunding real estate projects across the country with Patch of Land.
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If you still want to know how Patch of Land works for professional real estate developers and accredited investors, please visit Patch of Land’s FAQ section and learn more today.

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