Many private lenders try to avoid hiring a law firm to draft loan documents for all the loans they fund. In some cases, it makes more sense to use an automated loan documents software and in others it may be better to get an attorney involved. Private Lender Link’s CEO, Rocky Butani visited Lightning Docs’ office in July 2023 to interview Nema Daghbandan, Esq. Watch the video or read the transcript below.
ROCKY BUTANI:
I find that a lot of lenders don’t want to hire an attorney to do the docs because they don’t want to add that extra cost and pass it on to the borrowers. So they’re trying to cut corners and do it by themselves or they might find an alternative where there’s a loan docs prep company that’s not an attorney, but they use attorney loan docs. So how much are people actually saving, or could you tell us the general cost of preparing loan docs for your average residential investment property transaction?
NEMA DAGHBANDAN:
A hundred percent. And I think that’s a big reason why Lightning Docs was formed. Prior to Lightning Docs, my primary role was the preparation of loan documents for our clients on a national basis. And so, you know, unlike most other law firms, we kind of tripled down on this one aspect and say we’re going to represent business purpose loan originators on a national scale and we’re gonna write their loan documents in Florida one day and in Delaware the other and in Texas the other, right? We’re going to be able to navigate that landscape. And that works particularly for larger bridge loan transactions and larger meaning, you know, probably about $500,000 above because we are passing on legal fees, you know, somewhere between about $1,000 to $3,000 typically in legal fees to do that.
But as you know, the proliferation of the DSCR as a loan product that came into our space, those transactions, the data still shows that they’re oftentimes in the $100,000 to $200,000 range. So now when you’re passing off $1,000 fee, which doesn’t seem like a lot to hire a lawyer, but when you start looking at it vis-a-vis a loan amount and you say it’s, well, that’s a point, right? And points matter. And so when we started seeing much smaller transactional sizes, that’s really when we started seeing the need for a software solution for these exact same clients. Where they’re saying is, “I wanna be protected and I know I don’t have the benefit of a lawyer being involved in the transaction anymore.” And there’s a loss to that, right? It’s not like you’re going to get this exact same thing, but they wanted to know is am I operating on good documents today in this market that are refreshed and updated? And that was the key concern.
And so that really was the genesis for us of taking what was an internal software solution, something we created just to prepare loan documents for the law firm, and we says, well, we can generate this comfortably for the law firm, why don’t we just license the technology to our clients who really want to do one of two things. One is control costs, but typically more importantly to them is not the cost aspect of it, it’s the control. They wanna create loan documents at nine o’clock at night ’cause their people are working at nine o’clock at night. Good luck trying to, you know, even us included, calling us at nine o’clock at night and saying, “I need somebody working on this.” It’s just not the nature of most businesses, right? So it really gave them probably more importantly than even cost was control. And from a cost perspective, we just talked a second ago as you know, even as a law firm, we were probably in the $1,000 to $3,000 range. When we’re talking about Lightning Docs as a solution, you know, you’re now talking about like $200 to $500. It’s a huge cost differential compared to hiring any law firm, which makes sense because obviously one’s a piece of software without live employees whittling away, and the other is lawyers involved throughout the entire process.