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Commercial Loans

12 Months Ended

Dec. 31, 2012

4.	Commercial Loans

Short Term Loans Receivable

The Company offers short-term secured non–banking loans to real estate investors (also known as hard money) to fund their acquisition and construction of properties located in the New York Metropolitan area. The loans are principally secured by collateral consisting of real estate and, generally, accompanied by personal guarantees from the principals of the businesses. The loans are generally for a term of one year. The short term loans are initially recorded, and carried thereafter, in the financial statements at cost. Most of the loans provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term. For the years ended December 31, 2012 and 2011 the total amounts of $15,173,500 and $8,512,537, respectively, have been lent, offset by collections received from borrowers, under the commercial loans in the amount of $10,963,486 and $7,254,478, respectively. Loans ranging in size from $30,000 to $1,000,000 were concluded at stated interest rates of 12% to 15%, but often at higher effective rates based upon points or other up-front fees.

The Company uses its own employees, outside lawyers and other independent professionals to verify titles and ownership, to file liens and to consummate the transactions. Outside appraisers are also used to assist the Company’s officials in evaluating the worth of collateral. To date, the Company has not experienced any defaults and none of the loans previously made have been non-collectable, although no assurances can be given that existing or future loans may not go into default or prove to be non-collectible in the future.

At December 31, 2012, the Company was committed to an additional $2,009,500 in construction loans that can be drawn by the borrower when certain conditions are met.

At December 31, 2012, the Company has made loans to five different entities in the aggregate amount of $1,570,000, none of which are long term loans receivable. One individual holds one hundred percent interest in each of the entities. The individual has no relationship to any of the officers or directors of the Company.

At December 31, 2011, the Company has made loans to four different entities in the aggregate amount of $1,470,000, of which $155,000 is included in long-term loans receivable. One individual holds at least a fifty percent interest in each of the different entities. The Company also has made loans to six different entities in the aggregate amount of $1,376,500, none of which are long term loans receivable. One individual holds a fifty percent interest in each of the entities. The Company also has made loans to five different entities in the aggregate amount of $1,600,000, none of which are long term loans receivable. One individual holds at least a fifty percent interest in each of the entities. All individuals have no relationship to any of the officers or directors of the Company.

At December 31, 2012 and 2011, no one entity has loans outstanding representing more than 10% of the total balance of the loans outstanding.

Some of the loans in the Company’s portfolio at December 31, 2012, were jointly funded by the Company and an unrelated entity during the year ended December 31, 2012, for aggregate loans of $510,000. The accompanying balance sheet includes the Company’s portion of the loans in the amount of $255,000. There were no jointly funded loans at December 31, 2011.

The Company generally grants loans for a term of one year. In certain situations the Company and its borrowers have mutually agreed to the extension of the loans as a result of the downturn in the economy and the real estate industry in the New York metropolitan area. Potential buyers of the real estate serving as collateral for the short-term loans may have difficulty securing financing due to restrictions imposed by financial institutions resulting from the recent mortgage crisis. In addition, the Company’s borrowers may be having difficulty securing permanent financing. Prior to the Company granting an extension of any loan, it reevaluates the underlying collateral.

Long Term Loans Receivable

During the year ended December 31, 2011, management determined to reclassify a portion of the Company’s short term loans to long term loans receivable. Long term loans receivable comprise the loans that were extended beyond the original maturity dates, unless it is clear that the loan will be paid back by December 31, 2013. At December 31, 2012, the Company’s loan portfolio consists of approximately $11,023,000 short term loans receivable and approximately $2,602,000 long term loans receivable.

Of the long term loans receivable, approximately $89,000 have repayment terms, extending through the year ended December 31, 2017, while the remainder of the loans, by their terms, are due through December 31, 2013.

Credit Risk

Credit risk profile based on loan activity as of December 31, 2012 and 2011:

Performing loans	Developers- Residential		Developers- Commercial		Developers Mixed Used		Total outstanding loans
December 31, 2012	$	12,169,366	$	400,000	$	1,055,000	$	13,624,366
December 31, 2011	$	8,725,367	$	78,985	$	610,000	$	9,414,352

At December 31, 2012, the Company’s commercial loans include loans in the amount of $499,666, $567,200, $750,000 and $1,537,500, originally due in 2009, 2010, 2011 and 2012, respectively. At December 31, 2011, the Company’s commercial loans include loans in the amount of $521,700, $1,702,200 and $955,000, originally due in 2009, 2010 and 2011, respectively. In all instances the borrowers are currently paying their interest and, generally, the Company receives a fee in connection with the extension of the loans. Accordingly, at December 31, 2012 and 2011, no loan impairments exist and there are no provisions for impairments of loans or recoveries thereof included in operations for the years then ended. Subsequent to the balance sheet date, $2,830,666 of commercial loans, of which $160,000 is included in long term loans receivable, outstanding at December 31, 2012 were paid off.