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Due Diligence

Invasion of the Property Snatchers

The Financial and Community Impact By the End 2 End Team Your property is being taken without your consent and your knowledge. You find your asset is being essentially snatched away from you by a squatter, an individual living in your property while having no title, no rights, and/or no lease. Despite the squatter having no right to the property, it now falls upon you to determine how to remove them from your residence. You are not alone. This is one of the largest issues that plagues the real estate industry, and is quickly becoming a nationwide epidemic affecting many communities, with the hardest hit areas being our major metropolitan areas. While this is a growing problem, there are strategies you can take to protect your property from being invaded. While there are strategies to protect yourself from squatters — what do you do if you have fallen victim to this growing problem? What to Do The first step is to understand that squatters come in many forms. It will be helpful for you to understand what type of squatter is in your property to determine how to move forward. The type of squatter can vary from a vagrant to individuals who are well versed in the process of occupying vacant properties. In some cases, a vagrant occupant may be removed from the home by simply contacting your local authorities and rekeying the property. However, if you have a professional squatter, these individuals are aware of squatter rights and will pose a larger risk to the property and the timeline to legally obtain possession of the property. The worst-case scenario is a “master squatter,” where the property owner is not the only victim of this crime. A master squatter is a scam artist who is presenting themselves as an entity who has the authority to rent out the subject property. They rent the property to an inexperienced or high-risk renter who will pay the deposit and rent payments to the fake property management company that will disappear once the tenant becomes aware that they were scammed. The tenants will have a fake lease and in some cases are out a substantial amount of money due to a large deposit or were requested to pay for their lease in advance. In this scenario, you can either help relocate the tenant through relocation assistance or proceed with an eviction process to remove the tenant from the property. To plan on how to protect your asset, it is important to determine how the squatters or master squatters obtain access. In a day and age where technology continues to evolve exponentially, how do you bring a benefit to the user that does not open up a larger opportunity for deception or fraud affecting the property owner? How the Scammers Work While technology is helpful to market your property for rent, know that scammers are targeting vacant properties posted online by rental companies and social media outlets. They will copy the photos, place them on their own social media platforms claiming that they own or manage the property and are seeking tenants to occupy the unit. When they find an interested party, they will go online to the site where the property is listed by the actual property manager or owner and request an appointment to view the unit. During their visit to the property, they will find a way to leave something open to allow access to that unit after they leave, whether that be unlocking a back door, opening a window, etc. They then come back and access the property and change the locks. They create fake leases and accept funds from unsuspecting renters and provide them with the keys. Some of them have really done their homework using doctored leases used by some of the largest Single Family Rental Companies; therefore, to the uneducated renter, they appear to be legitimate. Soon after moving in, these victims find out that the person who rented the property to them did not have the legal right to do so. They will try to contact the person only to be harassed, hung up on, blocked or find that the phone number no longer works. A large percentage of these people also find out later that they are also now victims of identity theft, as the person they provided all of their personal information to was a criminal with ulterior motives. Once the property owner receives confirmation that their property has been occupied by illegal occupants, their first instinct is to call the police and have them removed and/or arrested; however, unless there are obvious signs that trespassing has occurred, the authorities will refuse to assist in the removal of the unauthorized occupants.  In most cases, they will refer to it as a civil matter that needs to be addressed with the eviction courts. This process can be rather difficult when the property is occupied by an unknown person whose name you do not have, and this information is required to file an eviction action in many states. Some states will allow you to file under Jane or John Doe, others do not, posing yet another challenge for the homeowner. Depending on the state and the situation, it can be a lengthy process to obtain judgment to move forward with a sheriff lockout. The challenges have been compounded by extended delays with the courts and sheriffs that have been created by the pandemic. In some states, we are seeing lockouts being scheduled months in advance. Unfortunately, this process is resulting in large losses for the property owner. Not only have you lost months of rental income, but you are spending hundreds of dollars on legal fees to obtain possession of a property that has been illegally inhabited. The Impact to the Community Unfortunately, the financial impact can be much greater than the loss of rental income and the legal fees spent to obtain possession of the property. In addition, the property owner will be required to pay

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The Impact of Flood Zones on Valuations

The Best Course for Due Diligence By Rich Reade Today, flooding is a topic of major interest and concern to investors, lenders, and homeowners for good reason: It is the #1 natural disaster in the US, having affected 99% of all US counties in the last 20 years. Flooding can happen anywhere and not just limited to coastal areas, near bodies of water, nor the Federal Emergency Management Agency (FEMA) designated high-risk zones. Flooding can cause disastrous consequences even in relatively minor cases. Just one inch of water can cause $25,000 in damage, with an average flood insurance claim payout of $52,000 from the National Flood Insurance Program (NFIP). Flood damage can cause rotting of building materials, mold and bacteria growth, and structural damage, all of which can affect the overall investment value, short or long-term. Statistically, natural disasters are occurring more frequently and with greater intensity. Ninety percent of disasters include flood impact, and 42% of homeowners are concerned that weather events such as wind, rain, or flooding will damage their homes in the next three months. With such impact and ever-evolving data supplying the guidelines of flood risk, it is crucial to have an expert resource to help you precisely and unambiguously answer these questions:  »         “What level of flood risk applies to my investment now?”  »         “What level of risk may apply in the future?”  »         “Do I have any options to challenge the official flood status of a structure?” How Flood Risk is Dictated FEMA produces the Flood Insurance Rate Maps (FIRMs) that show all the geographic areas FEMA has defined according to varying levels of flood risk. These flood zones illustrate where low, moderate or high-risk areas exist on the landscape. Every property is in a flood zone of some type, whether high, moderate or low-risk. The high-risk zones are called Special Flood Hazard Areas (SFHAs) and include the zones that have a 1% or greater chance of flooding in any given year and a 26% chance of flooding over a 30-year mortgage. FEMA’s Effective FIRM represents and dictates the current location of all flood zones, including SFHAs. Effective FIRMs are continuously updated using data and input from community floodplain administrators working with local engineers and surveyors. FEMA relies on this ongoing collaboration to keep the maps as accurate as possible because flood risk can change over time due to new land development, weather patterns and other factors.  FEMA’s Preliminary FIRM shows changes that have been proposed based on new community data showing changes that may come into effect in the future. Communities have 90 days to submit technical data to support an appeal to a proposed map. Once a new map is adopted as an Effective FIRM, amendments to the map can still be made through the Letter of Map Change (LOMC) or Letter of Map Amendment (LOMA) process. An important takeaway is understanding that an ongoing and collaborative process exists in establishing and maintaining guidelines for flood risk management as well as insurance requirements. In certain cases, a structure’s official flood status can be challenged and overturned, via the previously mentioned LOMC process, potentially removing insurance requirements. When Insurance Is Required, and When Insurance is Recommended Flood insurance is required by law whenever a habitable structure comes in contact with an SFHA, if that structure has a mortgage from a government-backed lender. This is why structure-based precision is important, to be certain where the structure sits in relation to the FEMA flood zones. If you live in a low to moderate risk area, flood insurance is typically not required. Low risk, however, does not mean a flood will not occur. In fact, one-third of flood insurance claims come from moderate-to-low-risk areas, and this value does not include properties that do not carry flood insurance, but flood just the same. Even if a government mandate is not force-placing flood insurance on your investment, it is highly recommended to always confirm your structure’s flood status and consider flood insurance. Options include insurance through NFIP, which covers up to $250k, or private insurance which can cover higher amounts. Challenges Frequently Encountered in Confirming Flood Status There are an overwhelming amount of well-meant free resources available online that are unofficial, confusing or potentially misleading property owners. Users face a major learning curve or an exercise in futility when exploring mapping data and complex resources on their own, let alone resources that lack the detail required to have clarity on flood status. Even official flood zone certificates come with pitfalls of their own. Many are limited to the industry standard 1-page Standard Flood Hazard Determination Form (SFHDF). These single-page forms present the essential question, “Is the Building/Mobile Home in a Special Flood Hazard Area?” with checkboxes to indicate “Yes” vs. “No.” It is not uncommon for the checkbox to be incorrect for one of many reasons, including but not limited to, the certificate being produced on the wrong property, or it is based on an imprecise assessment of structure location in relation to the flood zones. The SFHDF is a text-only document and a one-dimensional snapshot of flood status that could be based on outdated or incorrect data. Homeowners, lenders and investors deserve clearer, better information. Best Course for Due Diligence Around Flood Status For any endeavor requiring confirmation of your true flood status, it is best to secure an official, certified and insured flood zone determination report that uses a comprehensive approach to confirming accurate flood status. An ideal provider will utilize the most up-to-date and available data, highly detailed mapping, (including FEMAs Effective FIRMs and any Preliminary FIRMs that may exist) as well as absolute precision in identifying structure location. An ideal provider will issue certified and insured reports protecting the user from liability due to Errors and Omission. And you should have access to support from trained experts like Certified Floodplain Managers (CFMs). Precision and expertise are the best assets for obtaining a clear picture of a structure’s official flood zone status and in

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The Overlooked Component of Due Diligence

Eliminating the Luck Factor in Investment Decisions By Nicholas DeSumma Knowledge, timing, and luck are often considered key variables that play into a successful real estate investment. However, those that successfully invest in real estate over long periods of time while adapting to various market cycles often can eliminate “luck” from their equation and substitute it with expanded knowledge. As an investor, continuously analyzing and refining the key questions — who, what, when, where, why and how — will help expand the knowledge component. The “who”, “when” and “why” are often answered prior to investing in loan or asset pools as they tie to the initial purpose and overall strategy of the endeavor. The remaining components arguably tie more to supporting the investment strategy: What // What asset type and class should be targeted, with emphasis on condition, level of investment, and overall financial upside in supporting the overall strategy? Where // Which market(s) should be considered based on determined opportunity, knowledge, and resources? How // How will the investment be funded? Have funds been raised or will there be a debt structure, such as through a private lender? Drilling in on the “what” component, and as the “what” is answered, an imperative component to execute on opportunity resides in proper due diligence. Conducting proper due diligence can become an artform as it is not only reliant on coordinating with various vendors, data providers, and relevant third parties, but it requires effectively and efficiently aggregating the obtained information in a method to make a decision in an accurate and timely manner. The Due Diligence Process During the due diligence process, there is a tremendous amount of focus tied to a property’s characteristics, such as square footage, bedroom and bathroom count, current value, and current condition, as well as its investment opportunity — renovation scope and cost, repaired value, market conditions between end user buyers and renters based on the strategy. An area that is often overlooked given its diversity and ability to effectively and timely aggregate viable data are a property’s intangibles: title, liens, violations, taxes and delinquencies or dues, such as those associated with a homeowner’s association. Understanding which loans or assets to acquire, as well as what strategy to implement, will drive the investment opportunity forward. However, an improper understanding of what was formally and legally acquired, as well as what legal obligations the investor is now tied to through the acquisition, can often, and drastically, derail the investment. Accordingly, Guardian Asset Management has created an unparalleled ecosystem to better support the entire due diligence process, with additional emphasis on the aforementioned property intangibles. Embedded within this ecosystem is the successful marriage of the various service pillars (as well as the various data elements that drive due diligence decisions), including renovation, maintenance, preservation, evaluation, single family rental management, asset disposition, and title services. Title services, inclusive of the various other property intangible components, can be a cost-adverse and lengthy process yet remains crucial to those seeking to invest in loans and assets. Combatting the Challenges The expectation for additional delinquent loan and distressed asset trades or acquisitions is prominent given current post-pandemic market conditions. With this expectation should come further consideration towards better understanding the intangibles of a property for various reasons, such as:  »         The prevalence of multiple transfers of vested ownership via Quit Claim Deed during the loan servicing and/or foreclosure process can delay or even bar the conveyance of a property due to recording delays at best and missing legal instruments at worst.  »         The merger, acquisition, and dissolution of many lending and servicing entities can stall any efforts at resolution should there lack a clear chain of succession and authority to correct essential legal documents.  »         Homeowner’s associations, tax collectors, and local code enforcement entities have become more proactive in recording liens and judgments to encumber title and ensure payment collection, even when outside of the bounds of statutory rules.  »         Title insurers have taken a more conservative approach on insuring over any encumbrances on title that do not have completely indisputable resolution on record, refusing to insure even with prior insured policies or indemnity from prior insurers.  »         Lending institutions have returned to more conventional and stringent requirements regarding clear versus insurable title policies, potentially shrinking the potential buyer pool and negatively affecting investment return, which could pose challenges on an investor’s exit strategy.  »         The ability to obtain financing for investors through private or hard money can be jeopardized if title or related issues are not easily resolved through the general investment strategy, such as resolving a violation for overgrown lawns. As a best practice to combat these increased challenges, partners that leverage product diversity, such as tax, municipal and code searches, will assist in not only ensuring more effective investment decisions, but mitigate risk with potential financing partners. An effective partner is not one that just delivers timely results, but it is one that advises on the diverse products and data available to align the right resources for the decision being made. Guardian’s philosophy is to not only ensure investors have access to all services, but to also advise on when to leverage each. These include title reports (Ownership & Encumbrance, Current-Owner Search, Two-Owner Search, Full Search, and Foreclosure Search), data tapes with abstracting documents, customizable lien priority flags to triage assets, tax certifications, municipal lien and code searches, homeowner’s association verifications, title clearance and curative services, assignment verification reports, replacement title policies and collateral document preparation and reconciliation services. A commonality between investors, regardless of the investment, is to create value and discover opportunity to expand. While the “luck” element may factor into being in the “right place at the right time” or “having the stars align,” it is no mistake that those who successfully expand their venture into a long-term operation eliminate luck by refining modeling and layering in tools to better analyze, decision and forecast. While the intangible side to real estate may be less glamorous, potentially

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Preventing Rental Fraud

How to Protect Your Properties from Potential Fraud By Justin Lieberknecht Fraud is out there. Whole call centers in India devote themselves to software fraud, bank fraud, gift card fraud, and rental fraud. According to the FBI’s Internet Crime Complaint Center, 11,578 people reported losing more than $350 million to fraud in 2021. The losses are likely much higher, as many scams go unreported, and some are stopped before money changes hands. Protecting your properties from potential fraud is an undertaking that requires diligence, attentiveness and awareness of what techniques are being used. Gathered here are what Poplar Homes has seen and what we and our affiliated companies have done to mitigate the risk of fraud. Where Does Fraud Begin? Most fraud cases start with a rental listing ad offering a “too good to be true” low monthly rent and then the situation escalates from there, up to and including the renter signing a fraudulent lease agreement, wiring the first month’s rent and deposit, and then eventually getting evicted by the “real” owner or property management company. Scammers will frequently take ads from legitimate websites, grabbing photos from Zillow, Apartments.com and others, and then reposting them on Craigslist, Facebook Marketplace and other listing sites as a rental with their contact information. The ads can have slight changes to the address, such as an added apartment number or unit number, or a change from “Street” to “Avenue.” We have seen ads with the numbers spelled out, so that 123 Main Street is listed as One-Two-Three Main Street. This is to try and keep the fraudulent ad from being detected by the real owners. The ads may have watermarked images or poor descriptions of the home. They may represent the actual company managing or owning the property, but they all have the scammers’ contact information. Major listing sites, such as Zillow, have made huge strides in eliminating these from their site, while no progress has been made on Craigslist and Facebook Marketplace. The unmoderated nature of these sites allows for fraud and places the burden on the property manager or owner to track their listings. Several companies, including FirstKey, American Homes for Rent and Progress, regularly scan these sites for illegitimate listings by checking the addresses of their own properties. Once a scam is found, it is reported by flagging it to the site, and then the scammer’s contact info can be used to search the site for additional listings that are fraudulent. To alleviate concerns over the often-low rent being charged, the fraudster, sometimes in the ad or sometimes in the first communication, will use a variation of a “need and reward” based storyline. The most common of these are:  The Religious // The scammers will represent themselves as religious and say that they are either changing churches or going on a mission trip, and thus the opportunity to rent the home. They compound this by presenting that they are looking for someone holy. This preys on the need to believe in a better-than-usual opportunity and helps potential renters move past the issues surrounding the unusualness of the situation. The Military // The scammers will represent themselves as an enlisted member of the military who has been assigned to a new base. This move has placed him in a situation where, because of the military housing subsidy, he can offer below market rent. The scammer will often advise that he is looking for someone with military-level cleanliness. This preys on the perception of the target that they are unusually clean and tidy, which is irrelevant to the situation. Steps to Prevent Fraud Scammers are getting better and better at walking people past yard signs, fraud alerts and even phone calls with the property manager or owner. The claims vary, but the scammer will advise the potential renter that they are working with the company and bypassing them will save money. Scammers have also claimed to be a part of the listing company and generate fake leases with the company information on it. When trying to stop this fraud, there are physical, technical, and engagement methods to put in place. Poplar Homes has found great success by having the following restrictions in place when generating codes:  »         No VOIP numbers (these are common for scammers as they can be generated easily).  »         A requirement for credit card, ID, and selfie (this adds friction and awareness to the shopper and eliminates the ability of the scammer to generate their own codes).  »         Numerous in-app messages and automated emails educating renters to never wire money for payment and to make all payments through Poplar’s platform.  »         Physical signs placed around the property (these state “this property is managed by Poplar Homes and if you are being advised otherwise, please contact us immediately.”) This can also be an automated text during the showing.  »         An attempt at direct contact (if you can contact the shopper while they are at the home and verify their situation, they can clarify any third-party involvement). When encountering someone who has been defrauded, Poplar Homes will first attempt to qualify them for a home we have available or even the home they are currently in. We have had success with this. We also offer assistance with reporting the incident to the appropriate authorities. In the case of fraud, it is necessary to insert as many points of friction as possible for the renter to bring their attention to the possibility of fraud. Each of these insertions will decrease the number of people who are fully defrauded. We get reports of fraud and do all we can to report it on the platforms hosting it. Poplar Homes places awareness moments throughout the process, and when someone is defrauded, we do all we can to avoid eviction. For the successful alleviation of fraud levels, a standard statement of prevention should be given to the press when any event occurs. It is possible to continue to reduce fraud as we have seen drastic

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Tax Planning

The Secret to “Making Your Own Math” By Teresa Bilsky A business owner is interviewing accountants with a one-question interview, “What is two plus two?” Applicant after applicant answers four until finally an experienced applicant looks directly at the business owner and without any emotional reaction answers, “What do you want it to be?” Though this is intended to be merely humor, those who are experienced in tax planning smile because there is a great deal of truth in that final answer. Yes, you can have your investment and your money too. You can make your own math. You just need to know where to begin. We begin each new business, new investment, or tax plan with the exit strategy Why? Well because we need the destination to formulate the map. Step two is determining the most cost-effective way to achieve that journey. This is where the plan arises to acquire your investment and keep your money. But how? We use special game pieces we call tax laws. Tax planning is much like playing Tetris: New pieces are continually falling; existing pieces are continually changing, and you (the investor and taxpayer) are the player. You start slowly with a blank playing screen where you have more control; but the longer you play, the more the pieces add up, obstacles present themselves, and everything seems to speed up. Know your pieces The falling pieces are tax laws, tax court cases, IRS interpretations of laws, investments, financial resources, time, your desired effort, input and knowledge. Start with where you want to end up » Do you want to acquire wealth through owning and retaining real property? » How much wealth? » Do you want to buy and sell to obtain cash wealth? » How will you make the cash work for you? » Are you investing to accumulate assets for estate purposes? » Will you need the properties to provide cashflow? If so, when and how much? » Do you prefer to work with residential real estate or commercial? All of these questions tell you what type of tools you will need. Knowledge Even though business owners need general knowledge in areas far outside their expertise, remember that investing in real estate does not make you a tax expert. The penalties for tax mistakes – both overpayment and financial losses for underpayment – are serious. The IRS does not care what you know; they only care about the rules and the money. Why do the tools change? The market changes, future earning capabilities change, buyers change, and Congress goes into session and the rules change. However, the most important factor is you. You change. Your knowledge and experience grow. Your portfolio grows. Your plan changes. Let’s start with some basics: You need to know what your assets are and what they are worth. All of your assets should be working for you in some way. I have yet to see that money stuffed in a coffee can duplicates in any way. Identify your assets and their value, then put them to work. Understand that the same piece of real estate may be presented with three different values depending on who is viewing the value and the purpose for the valuation. A written appraisal is based on the opinion of the market value by a professional trained to make those determinations which generally satisfies lending requirements. A valuation of the same property may arrive at a different number because it includes influences such as location, zoning restrictions, life expectancy of the building, and other permanent factors. Valuations have legal standing because they provide a definitive value. A good example of this is the tax court case for the Estate of Michael Jackson. The entire case was a dispute about the valuation of his assets at the time of his death. Finally, a financial statement would reflect the value in terms of basis without regard to market value. Let’s talk money. How do you keep more of your own money? You plan. The difference between tax preparation and tax planning is the answer to the question of “How much is two plus two?” Taxpayers in general should not wait for the tax return to be prepared before knowing where they will be for the year. They should already know. Tax preparation is reporting the results of the decisions you made in the prior year. Tax planning is impacting the outcome. We begin in the fall because it is late enough to project the income and early enough to achieve the desired results. Take charge of your pieces to impact the outcome by using the different tools available. If you are planning to acquire real estate to leave in your estate then know that the basis is stepped up at the time of your passing. A stepped-up basis means your beneficiaries get the tax benefit of the value of the asset at time of your death and not the basis you possess in the property, hence the dispute on the Michael Jackson case. A 1031 Exchange is a good tool to defer taxes on gains. As with any tax tool in the toolbox there are rules. The idea is simple: If you are allowed to defer tax on a gain by reinvesting into a bigger project that generates a larger gain, then government will see a larger return in the form of more tax. This is a great tool but it isn’t designed to help you, it is designed to generate more tax. However, it does benefit you because there is value in the use of money, also known as interest. The longer you get to defer taxes, the longer you get to use your money. You win. The more you grow an asset to produce a larger income, the more tax you generate, then they win. Investment in an Opportunity Zone is an advanced tool with rules by way of tax savings; this program encourages you to invest in economically depressed areas. Again,

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BLOCKCHAIN

Keep the Crypto. The Future is the Technology. By Jake Harris & Juan Huerta Imagine a bank that was purpose-built to handle nothing but projects. Every party associated with a project was welcome to come in and get their own bank account so they could buy and/or sell goods and services to others in the bank. Even the project itself could get a one-time-use bank account through which all the funds for the project would flow. This bank’s entire purpose would be the safe and successful movement and transactions of the project funds from the source through the project’s bank account until they were distributed directly to the bank accounts of the parties who supplied labor or material for the project. All of this through a single platform with simple universal rules and procedures, and all traceable down to the last penny. Blockchain is that bank. Pre-programmed smart contracts move funds between the digital wallets upon authorized release with full accountability and transparency and without human error at the speed of a single platform verification cycle (around 12 seconds). Of course, as with any new technology, things are not necessarily as simple as they first appear. Banking in blockchain comes with some “debates” you should understand. Open vs. Closed System debate Everyone knows of the rivalry between Bill Gates and Steve Jobs and their lifelong battle for Open vs. Closed systems for rival software and technologies Microsoft and Apple. Gates took the position that open systems allowed greater application and integration. Anyone could make a complementary add-on and plug-in at any point for greater inclusion. Jobs took the approach that systems (both hardware and software) are too delicate and fragile to work efficiently with random input from non-qualified engineers and technicians. So Apple was built in a closed-loop system to ensure the greatest customer experience. Blockchain resonates with the Jobs closed-loop-system approach. Everyone who wants to engage in a project needs to be on that blockchain and create a personal digital wallet. This allows smart contracts to easily transfer their payload (funds or other) from digital wallet to digital wallet. However, with the rigidity of a closed-loop platform comes the control and performance for the highest customer experience. Perhaps that is what Blockchain can provide the lending community: a more rigid platform to lend, but one that will result in less problems, confusion, and overhead to track and keep tabs on funds distributed. Proactive vs. Reactive Cost Accounting The current lending model with its reactive cost accounting is very time consuming and not very accurate, relying on an individual’s arbitrary quantitative guesses — a perfect example being the reporting of percent complete (PC). Funds are released for a project, then before additional funds are released the loan servicer spends time and money trying to identify exactly where the previous money went. With blockchain, loan funds may be “programmed” prior to releasing, then using Smart Contract to transfer the payload (funds) to a specific destination digital wallet upon approval and release, thereby providing full transparency and instant trackability into exactly where the funds went. Think about how much time would be saved by “programming” the fund distribution so funds can only be used for their explicit purpose. Then having instant and ongoing verification of fund transfers for future reconciliation, all at the lender’s fingertips. Death of Percentage Complete? One of the interesting by-products of the blockchain lending movement is that smart contracts (the vehicles that transfer the funds from one digital wallet to another) does not work well with fractional delivery. For example, Smart contracts are an “IF/THEN” statement and have a tough time being fractured for partial delivery. Instead, the smart contract needs to be written in a way that the full amount is split into smaller sub-smart contracts that can be delivered as written. Line items need to be delineated into their individual payment milestones and written at the onset. An example of two smart contracts in sequence would be that a painter will receive $1,200 upon start of the project at 123 Any Street, and $1,200 upon the successful completion of painting 123 Any Street. These two smart contracts run in sequence and are two separate transactions in the blockchain, both trackable from inception and funding to distribution and verification of receipt. What about Lien Releases? Lien releases are both a verification of funds received by parties who worked or performed services on a specific project, and a promise that no further liability is left open through secondary purchase or commitment made by the signor. While blockchain lending won’t be able to verify any secondary commitments, it can with exacting specificity detail who was paid on the project and for what. That is the real beauty of blockchains’ immutable ledger system. It keeps a distributed ledger system showing what was paid and to whom, when for all time. It never changes and not held in one location, so it is impossible to corrupt, change, or loose. Think about the ability to pull up any project and instantly trace funds from the source all the way down to the final mile provider with the confidence in blockchain that every transaction of funds was transacted and recorded in the blockchain forever. Reading the contracted commitments (smart contracts) and verified distribution of funds to each party’s digital wallet is like a detailed financial book. With this level of transparency, lien releases (and construction payment arbitration all together) will become all but obsolete. In a world of simple transparent financial commitments and fulfillments, all parties can focus their time and brainpower on the work at hand and find ways to innovate and upgrade both their projects and their operations for greater return for all! Psychological Impact of Blockchain Lending More than 50% – that is the amount of time key personnel in small/mid-sized businesses think, task, and worry about cashflow/money management. Blockchain lending allows the parties involved to not worry about the cashflow because the funds are being handled by an

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