Hard Money Contracts

Private Lending & Conventional Mortgage Advice
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Hard Money Contracts

Peter GrossoPro Member
Real Estate Agent · Farmingville, NY · Member since 2014 · 164 posts · 37 votes

Hello All, 

If I have private lenders who have never done a hard money loan but is willing to loan me money what contract should I use?  Promissory note? 

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Karen MargraveBusiness Member
Moderator
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
12y

@Peter Grosso You will need to know what is required in your state. Some states require that loans be done through a licensed mortgage broker, I don't know if yours does. Maybe @Ann Bellamy can steer you in the right direction. 

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    12y

    Your closing attorney will draw up the promissory note.  This is not anything that you yourself will create. 

    Curt Davis - KAIZEN Realty538 Reviews
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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    12y

    Promissory note to document the terms of the loan.  A deed of trust or mortgage, whichever is used in your state, to give the lender a security interest, assuming the loan is secured by some property.

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  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    12y

    @Peter Grosso You will need to know what is required in your state. Some states require that loans be done through a licensed mortgage broker, I don't know if yours does. Maybe @Ann Bellamy can steer you in the right direction. 

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  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    12y

    @Peter 

    @Peter Grosso undefined

    Here are the licensing requirements for brokering, and most importantly, for lending. You can look up your state. It is important that he and his attorney check into this carefully. The term "mortgage" in general applies to residential mortgages, and in many states, if he lends to your LLC that is rehabbing a property as a business, that would be considered to be a commercial loan. In most states, that is an exception to residential lending requirements, but NOT IN ALL.

    This is why we strongly suggest that he get an attorney in the state where the property is located, and one who is familiar with private lending.  Why?  Because most real estate attorneys have done zillions of closing for institutional lenders.  They don't have to worry about the lender's license or exception to the license.  And they also don't have to worry about protecting the lender with the note and mortgage wording, because institutional lenders usually provide their own loan docs.  Or use their own attorneys.  Attorneys who work with private lenders regularly are very familiar with all the requirements of the state in question, plus the usury laws, reporting requirements, etc.  

    Why is it important that you protect your lender?  Because you want him to know you are looking out for his security so he knows if it goes south, you are taking the hit first, not him.  And so he'll keep lending to you.  

    Do not attempt to draft these documents yourself!  

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  • Peter GrossoPro Member
    OP
    Real Estate Agent · Farmingville, NY · Member since 2014 · 164 posts · 37 votes
    12y

    Thanks for the sound advice

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