Private Money Partner Question

[Patrick Hancock]

Hello,

Partnering with a private money lender to assist with down payment on a duplex.  He will receive a return on his money for seven years but no equity in the property.  His question was how secure was his loan.  Since he will not own a percentage of the duplex can something be drafted (by an attorney) where his loan is secured by the property itself? Meaning if I fail to pay him, he can foreclose and take the duplex? 

Thanks in advance,

Pat 

[Derek Carroll]

@Patrick Hancock

Since you said you’re using his money for a down payment I’m going to assume that you’re using a traditional bank or other financing method for the majority of the purchase price. They will get first position lien. Your private lender can get a second position mortgage secured by the property. That said, it will need to be disclosed to the first position lender and many won’t allow it depending upon overall leverage.

You can always record the second position after the first closing, and many lenders won’t care or know or need approval. They may however have a form you sign at closing stating that they’re aren’t any additional loans against the Property and You’ll need to disclose at that time. All depends on who you use for a lender.