Hard Money Loan Past Due (any red flags?!!!)

[Bryan Price]

Hi All,

I signed a promissory note secured by a single family home that a real estate investor intended to flip. The real estate investor has advertised on this site, and continues to advertise joint ventures and private money deals in multiple states. I did a background check and was able to look up his many properties across all states so I really don't have concerns he doesn't have any assets.  We've been communicating quarterly on the property status, but a simple search on Zillow made me think he's lying to me. The property was actually sold back in April, but he's still giving me updates as if the property hasn't been sold. I understand I lose my collateral upon sale of the property.  

I signed a one-year note, starting at 18% interest and accelerating to 20% in the second year in the event of non-payment, which technically the note is now in default. We're now well into year two, and will be running into year three in January and I'm wondering at what point do I need to take action? My contact has been non-communicative and I'm wondering if he's experiencing cash flow issues and just trying to bide his time, or if there's a deeper issue and he's on the verge of bankruptcy.

Any advice you can provide for this situation would be GREATLY appreciated.

[Jay Hinrichs]

Quote from @Bryan Price:

Quote from @Jay Hinrichs:

Quote from @Bryan Price:

Hi All,

I signed a promissory note secured by a single family home that a real estate investor intended to flip. The real estate investor has advertised on this site, and continues to advertise joint ventures and private money deals in multiple states. I did a background check and was able to look up his many properties across all states so I really don't have concerns he doesn't have any assets.  We've been communicating quarterly on the property status, but a simple search on Zillow made me think he's lying to me. The property was actually sold back in April, but he's still giving me updates as if the property hasn't been sold. I understand I lose my collateral upon sale of the property.  

I signed a one-year note, starting at 18% interest and accelerating to 20% in the second year in the event of non-payment, which technically the note is now in default. We're now well into year two, and will be running into year three in January and I'm wondering at what point do I need to take action? My contact has been non-communicative and I'm wondering if he's experiencing cash flow issues and just trying to bide his time, or if there's a deeper issue and he's on the verge of bankruptcy.

Any advice you can provide for this situation would be GREATLY appreciated.

something is not right here..  You lent money  Not sign a note to pay money right ?
you got a deed of trust or mortgage to secure your note against a certain property right ?
the property you think was sold because zillow said so..

So if this is correct.. I would double check with the country recorders and see if in fact the property changed ownership.. IF you have a recorded mortgage and it was a normal sale handled by a title company and the buyer wanted title insurance then you would have had to be paid off and signed a mortgage release or a reconveyance deed.

One way or the other if you want some constructive help you need to clarify what you actually did..

Also the owner of property might have sold subject to your loan.. are you receiving monthly payments. ?

I'm sure this is a typical case study for a total beginner, I don't really know what I'm doing. I am the lender and the language is "This Promissory Note shall be secured by a mortgage lien against the real property". I didn't get a deed or trust and haven't yet received any payments. The note was signed by the owner of the LLC. I have a friend who also invested with this guy and she's received some small payments irregularly, but a small % compared of what she invested.

I'll follow up on the items you mentioned to take action on, I appreciate the input!

Ok lets take a step back and please dont take this the wrong way or think I am being condescending however here is how loans go.

1. you have the borrower  who I guess was introduced to you and is on BP and talks about doing JV s and deals etc..
2. you agree to lend money on one of his/her projects.
3. you identify the property and the amount your willing to loan.
4. your borrower will open escrow so you get a lenders policy of title insurane and insure your docs are recorded correctly.. most will prep the mortgage or Trust deed but most will not prep the note they will want an attorney to do that..
5. Once docs are prepped your borrower signs. You do NOT sign  you can but its not common for you  to sign on a prom note agreeing to pay you.
6. Title company makes sure the security instrument Deed of Trust or mortgage is recorded and you hold the note as your security. DT or MOrt is what your borrower signs and that MUST be notarized the Note does NOT need to be notarized ..
7. upon recorded you get your lenders policy showing what position loan you made AND on the mortgage or deed of trust there is a Block that is filled in that tells the county recorder to mail this document back to you once recorded.. The county recorder puts it of record but the original doc is sent back to you..

Your borrower now owns the property subject to your loan and is to retire your loan per the terms of the note.  IE monthly payments or interest accrued and paid at closing etc.

So what I hear from you is you have a note.. but maybe NO security IE DT or mort. and its not performing at all. So at that point you have an unsecured note and your recourse is to sue on the note if they wont pay.. and or sue for fraud if they never gave your security but inticed you to make this loan saying there would be security.. so as to not throw your borrower under the bus here you may not be fully aware of what deal you actually made.

hope this helps giving you next step but if its a significant amount of money I would get a consult with a RE attorney. And tell him what you did and show him / her what docs you do have.