Note Structure and Details

Summary

HypoCap Funding offers fractional mortgages on commercial real estate. The underlying mortgages will be purchases or refinances originated by a related origination organization, HypoCap Lending, or trusted partners only. Total and complete transparency is to be expected, including communication with borrowers.

Regulations

The initial offering of the fractional mortgage to investors is conducted under Regulation D 506(c). Securities issued by HypoCap Funding on the HypoCap Funding platform will not be registered securities. Notes issued on the platform are hypothecations with a single mortgage pledged as the collateral for the hypothecation. Each note is represented by a unique note issued by HypoCap Funding with the data related to the underlying mortgage accessible through HypoCap Funding’s data portal. Each note carries a face value of $10,000 and is able to be listed on a secondary market for trading. In compliance with Regulation D, the initial purchasers of the notes are restricted from transferring the notes for one year and must be accredited investors.

Structure

All loans conducted by HypoCap Funding for use as a pledge for hypothecation are collateralized by a commercial property with a first position lien held on it. HypoCap Funding will collect management fees through the spread on the hypothecation note (to be sold to investors) and the underlying loan made by HypoCap Funding. The interest rate spread will be disclosed within the offering docs. Each note offering shall only have claims on the specified collateral. There are to be no guarantees made by HypoCap Funding on full repayment and under no circumstance is there a situation where it is to be assumed other loans or assets can be claimed in the event of a note default. A note default is directly tied to the underlying mortgage pledged as collateral defaulting. The payment of interest on the note is contingent upon the underlying mortgage payment. All mortgages are to be non-recourse mortgages and there shall be no disclosure of sensitive personal information of the borrower. Each mortgage will be conducted utilizing an income-based analysis.

In the event of a default, a special servicer will be used to liquidate the property and return all net proceeds to the noteholders. This may result in a capital gain or loss. At liquidation, HypoCap Funding is entitled to all unpaid servicing fees and any expenses associated with the liquidation.

Offerings may be configured by borrowers to be structured as an auction or specified rate. An auction requires investors to bid for the interest rate they are willing to fund the note at with a minimum rate being specified by the borrower. Each investor may bid at any rate above the minimum rate specified at any time during the bid process. Following the closure of the bid process, the borrower approves the highest rate they are willing to pay and the bids are accepted from lowest rate to highest rate until the note is filled. All investors receive the highest rate accepted even if the rate is higher than their bid. If the borrower specifies the rate, investors are able to fund the note and subject to note being fully funded, the investor will receive the rate that was specified during the offering.

Loan terms are proposed by borrowers, with guidance from HypoCap Funding. The offering will not have any recommendations from HypoCap Funding. The underlying borrower will pay for all third-party expenses and file preparation prior to the offering being posted. The following are some terms to be decided by the underlying borrower/issuer:

  • Duration: 3 to 25 years
  • Interest rate type
  • Interest rate change frequency
  • Interest rate
  • Loan to Value
  • Financials provided for review/analysis
  • Reserves for repairs and maintenance
  • Personal credit score range of the borrower
  • Name of property manager and if approved by HypoCap Funding (if applicable)