Stone Mountain, GA · Member since 2013 · 28 posts · 1 vote
I have a house I recently purchased that I am renovating to resale. I also have an individual that is wanting to invest 10k to help with renovations. What is the normal collateral on my end? I really don't have anything worth the loan amount other than the house, which is worth much more. An attorney that she wanted to have write the contract suggested a deed in lieu with a clear title search, and put the 10,000 in first position in a promissory note. As an investor that knows the area where the house is located and sold a couple within a mile recently, I am quite sure the property will sell quickly and there would be no issue replaying the loan in full and interest.
It's reasonable for them to want a mortgage on the property as collateral. However, the fees for the attorney to draw all that up and run title could get pretty stiff as a % of $10K.
Also what do you mean the attorney suggested a deed in lieu? That you pre-sign a DIL in the event that you default? By no means would I sign something like that, jeopardizing our equity in the property.
With the individual wanting to invest having a mortgage on the property as collateral, she would be paid once I closed selling the house? She is using a pre paid legal service and thats what they suggested as far as the deed in lieu.
Tell her to have that attorney from the pre-paid service, whoprobably just garduated and passed the bar, to read here on BP about deed in lieu.
OTH, you could sign it and claim the process is circumventing the foreclosure requirements and have the deed nullified.
No, that does not work. Just make a straight second mortgage, if that lender is not willing, move on. Other lenders may payoff the first and fund the project, ther are some national lenders that say they will.
Galen Dawes is there already a mortgage on the property? If not, then the $10K loan would indeed be a first lien. Regarding the DIL, I have commented elsewhere where I think it is a bad idea... if the house is worth a lot more than $10K, there is plenty of collateral.
Ah, I see where it is stated it would be a first mortgage and the property is worth much more. The correct way and accepted way is to do a note and deed of trust and the lender would be in a first position, I agree with Chris!
By your lender getting bad legal advice that may have screwed up your deal, now, you may have to get with that attorney, inform them of the way things are and why the DIL is not a good idea. If they attorney is worth thier degree they should admit that (making a profesionally sounding excuse) and proceed, it they aren't and argue to save face, just move on......
But, there is the fact that you probably don't intend to default, if you do, you can overturn the DIL probably, but that takes you to a default and foreclosure, so, while there may be issues with wrongful foreclosure, it may be a matter of time and initial expense. If you do allow that to be done, at least have the deed held by a third party with a written agreement to deliver the deed and under what circumstances. :)
If the investor's position is to merely to be a lender, securing their loan/note with a mortgage (or deed of trust, as applicable) makes sense. If the agreement is to pay interest, a note would be appropriate. However, what if the investor is not just a lender and is to receive a split of the sale and the deal needs to be documented differently?
From the investors standpoint, I'd prefer to have control of title and avoid the loss of time and expense if foreclosure become necessary should the rehabber breach. This could be accomplished by holding title in a title holding trust with either the investors entity or a third party trustee in place.
If I'm the rehabber, I'd prefer to minimize or eliminate any control the investor have and merely sign a note without any personal recourse.