I would be happy to set up a call with our lawyer about this. He will probably have more things to consider than you and I have thought of already. This was an idea that I had suggested two years ago, and people had been supportive of the thought of "collective lending" ...but everyone (me included) decided it was easier to just try to do a conventional refinance through a bank or CDFI, rather than this financial cat-herding. It is great that some of the complications are already being thought through. I apologize if some of the stuff below is stuff people already know, but I want to make sure that everyone understands certain terms and ideas, and I also apologize if my explanations fall short of that. 

I don't think the "separation" issue is a real problem in terms of Omni's exempt status, as the vast majority of people involved in decision making at Omni are not going to be the people lending money. This is a good thing to be concerned with, though! It's a key "metric" of whether a nonprofit is a "public charity" or a "private foundation". Omni is currently a "public charity" and would not want to be a "private foundation". Way more rules and bureaucracy involved with the latter.

The other thing that is at issue is the "equity" that Omni has in the building. This is a different type of "equity" than we normally discuss at Omni. In the context of building finance, Equity, is the amount of the building that Omni owns outright, vs. what Omni still owes the lender. Thus, Omni purchased the building from the former owner for $1,950,000. Omni currently owes Mulberry Trust $876,019.24. If the building were to sell for what Omni paid for it, Mulberry Trust would get paid the remainder of what is owed to Mulberry Trust, the $876k (and $19.24), and Omni would receive the rest ... which is over a million dollars. 

So the question would be, would this LLC replace Mulberry as the lender, and only have to raise the amount that is due Mulberry, or ... would it have a different relationship to Omni in terms of governance? 

In terms of the question marks, it is very common for LLCs to dissolve after fulfilling their short-term real estate goals. So that's not a problem. 
In terms of "anonymous lenders" ... there have to be names involved ... unless they form an LLC that is a member of the Omni Lending LLC (which is something that happens in real estate and other investment partnerships) ... 

An interest rate would have to be agreed upon ... or, it could be set up with different members getting paid different rates if there isn't consensus. 

On Thu, Dec 14, 2023 at 1:55 AM Paige P <pgeplan@gmail.com> wrote:
Sudo Room has been discussing the possibility of securing the $876k by pursuing multiple lenders, rather than just one.

The idea proposed is below, but the proposal for the delegates is to ask our lawyer to help us write up some sort of structure like this, to present to potential lenders.

LLC idea
We create an LLC who's charter says it exists solely to buy this building with the money of its lenders, and collect interest on that loan. We try and get enough people to buy in, before Omni's foreclosure begins. Right now, Jake says they knows of 5 people interested in putting up 5 digits amounts, so in the $50k range. Proposed would be to have a minimum $10k requirement to join LLC, with option for individuals to join together and pool money to get a share.

If all goes well and Omni pays off the full loan + interest, those who are part of the LLC will have received back the money they put towards paying off the mortgage, along with interest (and then the LLC would dissolve?). But if the borrower (Omni) fails to pay, then the LLC forecloses on the property, and the LLC can then choose to liquidate the property to pay back members or do something else with the building. If some but not all LLC members decide to do something else other than liquidating, they have ability to buy out other members.

One concern is our lawyer would say that it would be inappropriate for them to create an org that would then lend to Omni (should have more separation). Another idea proposed to get around this was to issue bonds instead, since this would not require a separate entity, and we could work with our current lawyer on setting that up.

Another concern is potential sabotage of the system, by getting overwhelmed with lenders wanting and working to get Omni to foreclose, in order to get control of the building. To work around that we might require anonymous lenders to be vetted by known trusted lenders.

There is more discussion on this idea in sudo room's meeting notes: https://sudoroom.org/wiki/Meeting_Notes_2023-12-13

Paige


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