What is the best contractual agreement for private money?

Question

Both my private lender and myself are new to private money loans. What is the normal or recommended way to document the loan so that both the lender and the lendee (me) are covered? Is it a promissory note or...? I don't want a mortgage since that drives up the closing costs. Thanks in advance for any response.

Don Harris · Answer

@Pat Reilly You need to be talking to an attorney who handles Real estate closings because without a mortgage, your loan is bear axx naked unsecured. This is the wrong area to pinch a penny. Spoken from experience! You will pay now or you will pay latter.

Don Konipol · Answer

If you don't utilize a mortgage or deed of trust (depends on the state), then the loan is a personal loan. There are websites that facilitate peer to peer unsecured lending, and you can of course do so with an individual you know personally. Familiarize yourself with secured lending versus unsecured lending.

Tom Donnelly · Answer

Pat, You said a private lender, but maybe you mean a different relationship. There are lots of different ways to structure the relationship so that the money guy gets a good return, and you do too. If it is a loan, then he will want a first mortgage on the property. But you can also do an equity deal or a combination of both. @patreilly

Pat Reilly · Answer

Thanks to all for your advice, there's a lot more to it than I was aware of.

John Thedford · Answer

without a mortgage the lender has nothing to protect them from you encumbering the property

John Thedford · Answer

If there is enough profit in the deal the cost for doing the mortgage will not make a big difference

Darren Eady · Answer

You must create a lien on the property, which will be a Mortgage or a Deed of Trust. You could potentially use a UCC1, but I wouldn't do it without title insurance and a title report or things could appear on the title of the property with a UCC1 filing. A mortgage or DOT will come with insurance from a title company (or at least it should!)

Either way, you'll need to have at least a joint venture agreement with a partner that you have a good relationship with.

Charlie Fitzgerald · Answer

See a RE Attorney for this ...if you need a referral...pm me

What is the best contractual agreement for private money?

What is the best contractual agreement for private money?

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