Online escrow service for me to use to private lend?
Member since 2018 · 15 posts · 1 vote
Online escrow service for me to use to private lend?
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Alex BreshearsBusiness Member
Lender · Springfield, MO · Member since 2020 · 351 posts · 504 voteshi Jamen!
So the best way to do this is to actually start with a title company and have a title report pulled. The title report will verify who the vested owner of the property is, what liens may already be recorded on the property, and any large financial issues of the borrower such as federal tax liens or unpaid judgements. You can then have the borrower do a closing through the title company where you will be issued title insurance committment (after closing) and they will also record your lien instrument at the correct municipality so your lien shows up in public records. When handled in this way, the title company acts as an escrow agent and will disburse the funds according to the HUD-1 that is generated. On the HUD-1 should be the fees for the title company, title search, document prep, wire fee, origination points, etc. Anything after that will then be issued to the borrower at closing if you choose to have it handled that way. If they are cash strapped as it is, it doesn't make much sense to hold back funds in escrow because the reason they are doing the loan is they need the funds. Also - get added to their insurance policy and review it to make sure it the correct type and coverage limits include an amount high enough to pay off at least your loan (if you are in the first lien position) or a total amount up to where your loan amount is (so combined first and second liens should be the minimum coverage for the structure you would accept). Also - make sure they don't require a builder's risk policy for the type of renovation they are doing. Some investors just want the cheapest insurance possible, so they will take out a standard hazard policy, but if the property is undergoing renovations, it really should likely have a builder's risk policy. If something does happen and there needs to be a claim made, the insurance company can deny it because that type of policy does not cover what was happening at the property. Once you are added a mortgagee to the insurance (and you have reviewed the policy to make sure you are ok with the coverage), you will be notified if there is ever a claim made or the insurance lapses.
5 Replies
- New to Real Estate · Worcester, MA · Member since 2021 · 63 posts · 48 votes4y
This seems like something your lawyer would be able to advise you on.
- 4yAlex BreshearsBusiness MemberLender · Springfield, MO · Member since 2020 · 351 posts · 504 votes
hi Jamen!
So the best way to do this is to actually start with a title company and have a title report pulled. The title report will verify who the vested owner of the property is, what liens may already be recorded on the property, and any large financial issues of the borrower such as federal tax liens or unpaid judgements. You can then have the borrower do a closing through the title company where you will be issued title insurance committment (after closing) and they will also record your lien instrument at the correct municipality so your lien shows up in public records. When handled in this way, the title company acts as an escrow agent and will disburse the funds according to the HUD-1 that is generated. On the HUD-1 should be the fees for the title company, title search, document prep, wire fee, origination points, etc. Anything after that will then be issued to the borrower at closing if you choose to have it handled that way. If they are cash strapped as it is, it doesn't make much sense to hold back funds in escrow because the reason they are doing the loan is they need the funds. Also - get added to their insurance policy and review it to make sure it the correct type and coverage limits include an amount high enough to pay off at least your loan (if you are in the first lien position) or a total amount up to where your loan amount is (so combined first and second liens should be the minimum coverage for the structure you would accept). Also - make sure they don't require a builder's risk policy for the type of renovation they are doing. Some investors just want the cheapest insurance possible, so they will take out a standard hazard policy, but if the property is undergoing renovations, it really should likely have a builder's risk policy. If something does happen and there needs to be a claim made, the insurance company can deny it because that type of policy does not cover what was happening at the property. Once you are added a mortgagee to the insurance (and you have reviewed the policy to make sure you are ok with the coverage), you will be notified if there is ever a claim made or the insurance lapses.
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes4y
Quote from @Jamen Armendariz:
Anyone know of any kind of online escrow service that can be used for when you lend money to someone?
For instance, say it's for a loan 25-50k the buyer has closed already on the property. They need some additional funds to partially finance a rehab project. I prefer to lend only if my loan is secured by recorded deed to the property. I would like to keep the funds in an escrow account where they wouldn't be released until I receive confirmation that a deed securing my name/LLC to the property has been completed. Is this something that is possible?
Yes it's possible, using normal title/escrow folks. Relative to the loan amount, the fees will be an outrage. So ideally you would do this with an escrow/title team that you use for other stuff, frequently, that's of a normal amount of profit to them. If you don't have that relationship yet, you might be able to leverage a relationship you do have with a realtor or loan officer (if I'd closed 2 or 3 loans for someone, I might call in a favor with my go-to escrow folks that I put a few hundred deals through during the refi boom).
- Member since 2018 · 15 posts · 1 vote4y
Quote from @Alex Breshears:
hi Jamen!
So the best way to do this is to actually start with a title company and have a title report pulled. The title report will verify who the vested owner of the property is, what liens may already be recorded on the property, and any large financial issues of the borrower such as federal tax liens or unpaid judgements. You can then have the borrower do a closing through the title company where you will be issued title insurance committment (after closing) and they will also record your lien instrument at the correct municipality so your lien shows up in public records. When handled in this way, the title company acts as an escrow agent and will disburse the funds according to the HUD-1 that is generated. On the HUD-1 should be the fees for the title company, title search, document prep, wire fee, origination points, etc. Anything after that will then be issued to the borrower at closing if you choose to have it handled that way. If they are cash strapped as it is, it doesn't make much sense to hold back funds in escrow because the reason they are doing the loan is they need the funds. Also - get added to their insurance policy and review it to make sure it the correct type and coverage limits include an amount high enough to pay off at least your loan (if you are in the first lien position) or a total amount up to where your loan amount is (so combined first and second liens should be the minimum coverage for the structure you would accept). Also - make sure they don't require a builder's risk policy for the type of renovation they are doing. Some investors just want the cheapest insurance possible, so they will take out a standard hazard policy, but if the property is undergoing renovations, it really should likely have a builder's risk policy. If something does happen and there needs to be a claim made, the insurance company can deny it because that type of policy does not cover what was happening at the property. Once you are added a mortgagee to the insurance (and you have reviewed the policy to make sure you are ok with the coverage), you will be notified if there is ever a claim made or the insurance lapses.
@Alex and @Chris, thank you for your helpful insight and tips. Much appreciated!
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes4y
@Jamen Armendariz
You could use an attorney or loan servicing company - depending on state I can assist with either
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