Another hard money LLC question

2 Replies

This is sort of similar to a post I made a few months ago (sorry), but there is a difference...

If you invest in fractionalized notes (is that the correct term?) through a firm, rather than becoming a solo hard money investor, should you still make your investment using an LLC? Or does the firm that's handling the mortgage and all the business take all the legal risk, and I just act as a back end investor, just as if I were buying a stocks or mutual funds? Thanks once again.

To you this might be just an investment, @Bienes Raices, but in the eyes of the law, when your name or that of your entity goes on a note, you are a lender and it doesn't matter who brokered the loan. Here, you have all the associated legal responsibilities and must also accept any consequences.

Rest assured that if anything goes wrong, everyone involved, including you personally, your broker, and your entity if you use one, will be named in any suit. If this is a business purpose loan, perhaps on a flip, this likelihood is small but finite. Consumer loans, which I would stay away from, are subject to tighter laws and can be more emotional and therefore, more risky.

For what it's worth, our lending attorney recommends to us that we loan through an LLC, but this is not required. I don't know the law in Florida.

@Jeff S 

Thank you! Just what I was trying to find out...

Should you buy some type of special insurance to do this as well?