Sample Hard Money Contract

8 Replies

I have a private money lender who has offered to fund my deal and wants me to draft the contract.  I am looking for a sample contract that is fair to both parties to use as a starting point to draft one specific to our deal.  Can anyone recommend a site or provide a sample contract?


@Sacha Ferrandi

I am not actually sure how I would like to structure this deal and the lender is open for any scenario. When I initially posted this request, I was thinking LLC with voting member investors and non-voting member lenders and a clause establishing interest buy outs at time of sale, or foreclosure. I found a few sample operating agreements that will work with minor modifications, and my lender seems to be OK with that. Would you recommend something else? I want to be as fair to my lender as possible because I would like to borrow from him again if this deal goes well. I also want to minimize tax concerns for both of us as far as the instrument makes a difference.

@Brian Tome

The two essential elements to a loan secured by real estate is the Deed of Trust and Note.  The verbiage in these documents can vary greatly and you (and the lender) need to be familiar with the terminology, terms, etc. as these are legal, binding contracts.  Personally, I would utilize an attorney to help draft the Deed of Trust and Note just to be sure.  I'm sure you can look online and find these but again, these are legal documents that are extremely vital to the transaction.  In short, you don't want to do this with any shortcuts.  It is better to be safe than sorry, especially when dealing with a large asset like real estate.

@Brian Tome Your initial post talks of a "lender." If that is actually the case, traditionally that would mean a promissory note secured by a mortgage or deed of trust (depending upon where the property is). If you mean you're really looking for an equity partner of some sort, then maybe being a member of an LLC is appropriate.

What is the mindset of this individual? Lender of partner? Being a lender is far safer and simpler if there is adequate equity (70% LTV or less is typical with a max of 80% in some cases - you don't specify the type of property or the amount of risk). It keeps him out of the line of fire if the LLC is sued, members screw up, member fights, etc.

@Ed W. - Good points Ed.  The lender/equity partner is a family member.  He has done a promissory note/mortgage with non-family members in the past.  As embarrassed as I am to say it, I hadn't even thought of the risk of a lawsuit.  I will discuss them with him and see what he prefers.

You guys rock and I appreciate your insight very much.

Another good resource would be a local Escrow Agent. They have paperwork that can be used in mutual agreements like this. They are not attorneys though, so that is the best bet.