BiggerPockets

In Florida, I know that both a mortgage and note are recorded by the Lender with the Clerk of the Court, but where/how are the points (origination fee) addressed? The notes that I've seen in court records only have the interest rate and term of the loan with no mention of the points.

Thanks Dion. I am just trying to get an idea of the paperwork that is involved with a hard money loan.

Yes, you are correct... only the mortgage is recorded, but the note is submitted along with mortgage, so it shows up attached to the recorded mortgage.

I guess what I am trying to accomplish is determine how the agreement regarding points between the Borrower and the Hard Money Lender is documented.

How does the Lender advise the title company that 5 points (for example) should be charged to the Borrower? And does the borrower have to pay the points at closing or at the end of the 6 month or 1 year balloon note?

Ann Belleny is correct in the statements whereas predominantly those forms are used in residential transactions. Many hard money lenders including myself have used TIL's in our application process as a typical affirmative defense in Florida foreclosure is high cost loan and the state in general always had a hard stance against high cost loans. Also the line blurs quickly when lending to a natural person as a hard money lender. The nature of a loan is determined typically by the collateral and the borrower. In situations where the borrower is a natural person and the collateral is residential, the loan maybe deemed residential by the courts if it goes there. Good hard money lenders in Florida will cross their "t" and dot their "i". This will mean that disclosures at closing will be presented to be signed, some of which may address some of the concepts discussed herein.

Its not a bad idea to have your attorney read over the closing packet for your protection prior to closing. A title agent is not there to protect your rights and your lender is not really your friend, they will position for their best angle not yours.

A fee agreement must be executed in order for the lender to legally collect fees. Depending on the language of the term sheet, it may be included in that document or it may be a separate document. Either way a contract needs to be created between you and the lender or you and the broker for the fee in accordance with the law for them to collect a fee. The fee has to be clearly defined along with when the fee is considered earned and due from you. Typically this may include an initial agreement signed at application and one updated and signed at closing. This covers the lender regarding compliance in case of any loan changes.

A fee maybe paid in advance, paid at closing or rolled into the loan. I have seen a very wide array of loan structures but typically fees/points are due upon closing of the loan. It is a fairly equal percentage of being paid with cash at closing or being rolled into the loan.

It is probably important to point out that some of this is very dependent on who your getting your loan through. Directly from a lender or through a mortgage broker. If the lender than the paperwork should be pretty straight forward. If through a broker you will see paperwork which establishes your relationship with the broker and then paperwork which establishes your relation with the lender. Each party has a different role in their obligations to you and to compliance. If this is the case just ask the broker what you are looking at signing is from the lender or broker, they should tell you. Compare and contrast for your protection as needed.

In regards to how the title knows what to add to the closing statement, well that comes from the lender. The lender will deliver to the title company a full set of instructions which includes fees and paperwork for the title company to prepare. The title agent will prepare as suggested by lender provided it is compliant with their closing obligations. The title company will support their lender instructions accordingly as from time to time title companies can get dragged into problem hard money loan situations. Remember a title company is not there to take sides so they will not protect your interests they are suppose to be objective third parties and will cover they own operation liability as needed.

Hard money loans are good tools to use in this space. I see many folks get very hung up in interest and fees/points and forget to scrutinize the rest of the parameters of the loan. The adage of plan for the worst and hope for the best applies. Taking a hard money loan out puts the lender in a very favorable equity position into the property with superior legal rights. Some lenders practice "loan to own" operations which is predatory type lending and they attempt to fly under the flag of commercial loan so as to void the protection that would be extended to a borrower. Some lenders are egregious with their fees. And some lenders are great to work with. If you are new to this I would definitely get some legal counsel on your side of the fence to look after your best interests.