Recrowd Revolutionizes Real Estate Crowdfunding by Introducing New Contracts to Protect Investors

Recrowd, an Italian real estate crowdfunding platform, has recently introduced new measures to protect investors. These include the use of bills of exchange or debt recognition by proponents, the disbursement of the sums collected to SAL (work progress status) and the introduction of new digital support and control services.

The strategic objective of these innovations is well summarized by Massimo Traversi , Chief Project Officer & Co-Founder Recrowd: “In a sector characterized by risks and uncertainties, Recrowd wants to become a point of reference for safeguarding the interests of real estate investors, guaranteeing them concrete support and special attention to risk management, in particular, in their prevention and in the protection of those who invest in the event of non-compliance of the beneficiaries.”

By the beginning of next March, Recrowd will apply new contractual rules to all new projects presented on the platform , to protect real estate investors and control the proponents.

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Granting of power of attorney by the investor

First and foremost, Recrowd will continue to provide free legal support to investors directly or through designated companies, albeit with a new contractual framework.

If until now, in fact, the contracts between beneficiary and investors were simple “peer-to-peer” agreements, now, when an investor opens a wallet on the Recrowd platform, he automatically grants a power of attorney to a debt collection company, allowing it, if necessary, to contact the proponent on behalf of all investors.

On the other hand, the proposer must provide either a promissory note or a debt recognition deed , of his choice, to the debt collection company indicated by Recrowd so that it has the tools to act as the legal representative of the investors.

To encourage the subscription of one of the two guarantees, when an operation presented on the Recrowd platform is financed, Recrowd holds the funds for four days until the proposer releases the bill of exchange or debt recognition to the debt collection company.

The bill of exchange

Promissory notes are debt instruments that obligate the signatory to pay a specific sum of money at a future date. They are considered a form of guarantee because they offer greater flexibility and enforceability in the event of insolvency of the proponent.

Debt recognition

The debt recognition is a document that certifies the existence of a debt on the part of the proposer towards the investors. It simplifies the process in case of disputes by providing direct proof of the credit.

When do they “go into action” and what are the advantages for investors

The two contractual “guarantee” options become tools of great support to investors starting from the moment the proponent requests an extension in the repayment of capital and interest.

In the traditional lending crowdfunding regime, if the request for extension is not supported by objective reasons for the delay of the project, and were therefore considered “illegitimate”, investors could enter a stalemate situation, i.e. waiting for a collaborative solution from the of the project owner to resolve the debt position.

But if one were to then take legal action, the time needed to obtain a possible injunction could be very long, as the judge must reconstruct each contractual relationship between the proponent and the investors on a case-by-case basis.

The debt recognition act or the bill of exchange, on the other hand, presented by a single person (the previously appointed debt collection company) are immediately enforceable once presented in court, thus speeding up the process.

This involves the recognition of the debt, and the consequent access to the provisional executive decree with the acceleration of the procedure, including the possible precautionary seizure of the property or construction site.

Current account dedicated to the project

In addition to evaluating the adequacy of the relationship between the funds available to the proposer and the expenses for finalizing the project, Recrowd will require the proposer to dedicate a bank account to each operation. Furthermore, the proposer will have the obligation of quarterly reports.

On the other hand, Recrowd appoints a project manager, or “controller”, to ensure that the proponent executes the project within the agreed deadlines and to represent investors in a transparent way.

Project proposals will therefore need to provide detailed information regarding the use of funds and the reconciliation of financial flows, thus significantly limiting the project owner’s ability to use the funds for other purposes.

Disbursement to SAL

Not only that: the financing will be disbursed in installments, based on the progress of the project, which, obviously, requires in-depth preparation of the project and planning of deadlines, already at the stage of submitting the projects to the platform.

Recrowd has started partnerships with specialized companies, firstly to have an in-depth analysis in advance on the feasibility and investment risks of a project, but also to professionally and accurately monitor the progress of construction sites.

Recrowd partners will therefore be able to provide the presence of an executive director responsible for coordinating the open construction sites and managing as well as the financial flows that are used for the actual progress of the works (SAL).

New digital interfaces

Recrowd also announced that digital interfaces will be created both to manage appointments and to have all the project’s multimedia contents available. A solution that will allow investors to constantly monitor the project and therefore its investment and which will also make real estate transactions an emotional journey.

It will make the difference especially during the sale of the real estate units which are the fundamental step for liquidating the loan.

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(Featured image by moerschy via Pixabay)

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First published in Crowdfunding buzz. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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