Professional Paperwork - Work with attorney?

Question

Hi everyone,

I'm planning on purchasing my first investment property in the next few months. I'l be purchasing via my LLC, but will likely be getting a private loan from family for part of the down payment. Before beginning the transaction, I want to make sure that everyone involved feels comfortable and protected. To accomplish this, I want to provide my lenders with a personal guarantee and Promissory Note. I also need help drafting up rental agreements and other paperwork. I know that you can find a lot of templates for real estate documents online, but I'm not totally comfortable just ripping something off the internet and hoping that it would hold up in the event of a lawsuit.

Should I be working with a lawyer / attorney to create templates for this paperwork? If so, what qualifications should I be looking for to know I'm working with the right person? Any advice is appreciated 🤠

Eric Wood · Answer

Thanks for the information, Jeff. I'll look into everything that you mentioned!

Jeff S. · Answer

It’s a good question and not something you should take lightly, @Eric Wood.  I can speak for the lending side.  This means working with a lending lawyer.  These are not real estate attorneys who might do closings, leases, and evictions.  Lending lawyers special in lending and securities.  Both you and your family member(s) should sit with one to understand lending in general as well as usury, licensing, other possible state restrictions, title insurance, hazard insurance, as well as origination in general.

Eyes wide open.

The lawyer should also explain the risks to your family member and their options.  This might be uncomfortable for you.  For example, think twice about asking someone inexperienced to lend to you in second position.  They could easily lose all their second-position money if a first-position lender forecloses or if you go bankrupt.  I know you’re thinking it's unlikely, but this really does happen.  What if they have to foreclose on you?  Or sell their loan?

You’ll read here from those who claim all you need is a note and a mortgage or deed of trust (state dependent).  And, that you can obtain these from a title company or, for heaven’s sake, off the web.  To properly protect them, your family member should use a set of professionally prepared loan documents.  These will include a note, mortgage/DOT, personal guarantee, title insurance, fire and hazard insurance, lender instructions, and a host of required disclosures and agreements.

Things can get ugly when business and family mix so it’s important everyone is protected, Eric. There are several lending attorneys who work nationally now, but local is always better if you can find one.  Speak to some HMLs in your area and ask them who they use.

Some lending attorneys now offer online documentation.  You provide the loan details, and it spits out a set of docs.  Get your feet wet first and meet with an attorney before you get into that.