Private Lending/ Hard Money Lending

14 Replies

Can anyone tell me about Hard Money Loans rules/regs/laws?  How to become one? Do you need any license or do you have to register with anything?  Would it be easier to just call myself a Private Money Lender?


The rules/regs/laws will vary depending on what State(s) you're looking to lend in.  Your best bet is to get legal counsel to make sure you protect yourself.

Good Luck! another poster stated, states have their laws on HML. Some states require a license and some do not depending upon the loan. In Florida, representing others in a loan transaction requires a license. Lending your own money for your personal benefit does not. No matter what state you live in, you MUST comply with Dodd-Frank. The LAST person you want to hear from is an attorney claiming you violated DF or the CFPB. Either could be very bad news. Fines can range from $5,000 A DAY to $1,000,000 A DAY! That is enough to take ALL the profit out of most any deal...even The Donalds!

Don't think that because you call yourself a Private Lender you can cut corners or play loose with the rules. There is absolutely no difference in what you title yourself, @Corey Roark . You still have to comply with all state and federal lending laws and they don't care what you call yourself. Also, be careful with all the solicitations you will receive now that you posted publically that you have money to lend. It's hard to tell your real estate or finance background since your profile is almost blank, but be careful.

This question has been asked frequently so you might do a search. Rather than rewrite history, here are a handful of threads that might be useful to you:

I would like to become a Hard Money Lender. Any resources?

How to become a Hard Money Lender?

Hard Money Lending – Becoming an Investor

Note too that many of these link to other related topics.

A few of us detailed our process step-by-step in the first thread, which I hope is helpful to you. It's still about 95% accurate for us. Now that this segment of the industry has become more competitive, there could be pressure for you to play a bit more freely when creating your lending criteria, in order to compete. Don't succumb. Real estate is also heating up (or already overheated??) so you want to be doubly sure your loans are safe.

Safety to us means never loaning further than we can drive to see all properties and never loaning to anyone we don't know, like, and trust. Obviously, that means loaning locally and meeting and getting to know your borrowers. It also means making sure your borrowers have a great deal using a conservative valuation, as well as adequate skin in the game. Unless you have access to an extraordinary amount of money that must be deployed, I'm sure there are enough homes in the Denver area to keep you busy.

My understanding is that lending laws in Colorado are rather lenient. This can work against you, not only because the barriers to entry might be low, encouraging competition, but also because you might be lulled into unsafe loans that are too easy for you to make. First, make sure you understand basic lending law and licensing requirements from a good lending attorney. Then, if I were you, I'd approach some of the larger hard money lenders in your area, learn their criteria, and possibly buy some of their loans before I stepped out on my own.

Good luck, Corey.

Colorado is pretty simple, I would still work with an attorney to make sure your playing by the rules. Also depends on if you are lending your money or brokering other peoples money - that make a big difference in CO. 

I would suggest as others did use an attorney at least for the first loan. Also keep away from consumer loans because then you have to comply with Dodd- Frank rules. If one sticks with commercial loans Dodd-Frank does not apply. That means lend only on commercial properties or if you lend on residential properties 1 to 4 units make sure that properties are used for business purposes only. That means borrower is buying the property to fix and flip or if borrower holds the property, it must be rental and not used as personal residence. There is a form that you have borrower sign that states that he/she are buying the property for business purpose only and at no time are they going to occupy the property. It also advises the borrower that if he/she moves into the property the lender will immediately call the loan due and start foreclosure procedure. There are few other important forms that, by law, you have to have borrower sign. Consequently if you do not use an attorney get well educated on lending laws of your state. Also there are companies that provide "Document Preparation" services to the HML and if you use them they will provide you with right documentation.

Good luck,


Might begin by understanding the difference between hard money lenders and a private money lender, hard money advertises, they work under a company name the rules are much stricter.

Private money is a lender who has a personal relationship with a borrower, they know each other and te lender is not in the business of lending. 

You'll find hard money lenders calling themselves a private lender, that's marketing, they are not if they are in the business. 

So, as you research the laws, ignore private lender exceptions if you intend to make loans to the public. :)

Hard-money loan documents generally consist of a promissory note , a commercial-style deed of trust and security agreement ; and a participation agreement . Occasionally one will see a loan agreement or joint venture agreement as well. The latter is less common because a JV agreement would make the lender jointly liable to third parties and hard-money lenders usually want none of that.

As a private lender ,are you considered a business , an LLC and acting like a business? I would like to set up a Solo 401k but was told it is not a business by one of the large players.

thank you

@Glenn N.

It is most beneficial to treat interest income from lending as passive.  As such, it would not be the kind of earned income that qualifies to sponsor a Solo 401k.

While you could potentially structure your lending activities to be a business where you draw some of the income as management fees/salary, that can be self-defeating.  Why move income into a higher tax status in order to be able to defer that income into a retirement plan?

A self directed IRA, perhaps the IRA LLC with checkbook control would be a perfectly viable means to be able to control your retirement savings and invest in alternative assets such as real estate and lending. Perhaps you should evaluate that program.

@Glenn N.

For the purposes of a Solo 401k, you are looking for earned income from self-employment. By default, lending money would be a passive investment. However, you may have an active business based on a number of factors surrounding how you conduct this activity. It may be possible for at least a portion of your income to be earned from your activity. Do you have a qualified tax advisor on board that you can run this by?