Private Lending Doc Prep ...why all the differences?

Question

Hey BPers,New to the site and really impressed at the friendliness, expertise, and camaraderie happening around here.  I'm considering some PM lending to an old friend who's flipping full time ( not sure about it yet, so feel free to warn me about friend/lend danger!).  My RE background is slim, so I've now read approximately 783,594 threads here about structuring PM deals, good practice, what to avoid, etc.  At this point, I'm a little puzzled by the variety of advice around PM-related loan paperwork and who should produce it. So far, I think I've run across these recommendations on who should do doc prep:* the title company * a licensed broker * you ( the lender )...grab a DOT/Mortgage and PNote online!* a real estate laywer* HML ( origination services only ) * a lending attorney ( more specialized than an RE atty )...am I missing anyone?I'm glad for the one piece of nearly universal advice around here: have an attorney review and finalize docs when they're ready, especially on a first deal.  But my question is this:

What drives the different recommendations about paperwork prep before final atty review?

Does the type of deal drive doc prep preference?
State regs maybe?
Is it familiarity perhaps ( meaning you got started down one path and never needed another )?
Maybe it's random bad experiences ( as in: "No way I'm working with a broker/HML/whatever again after that nasty deal last year..." )?

Not meaning to start a raging debate about who's right, because I suspect any competent pro in the list above could do a fine job.
Just curious about what the thinking is behind the various doc prep routes I've read about from BPers so far, and which one might fit my PM lender situation the best.
Cheers, and thanks for any insight!

PS:  working in Colorado if that matters...

George Despotopoulos · Answer

Hey @Kyle Doney. A promissory note is the contract between the lender and borrower, it references the transaction and deal terms; the mortgage, or deed of trust, is the security instrument that puts the lien on the property when recorded properly.

Different lenders have different documents for their various loan types and lending practices. Moreover, when private or specialty lenders do for example business-purpose loans on non-owner occupied property certain disclosures and documents aren't required. Lenders in this space tend to create their own form docs in order to sufficiently protect themselves.

Title company has a certain set of docs, this usually pertains only to the Title Policy on the property.

The deal does drive doc preference as do state/federal statutes/regulations.

We tend to give certain disclosures that are not required but feel they help educate the borrower and also make clear what is expected of the borrower and owed at closing or at maturity.

Really the documents vary and you are correct in opining that the deal does drive doc preference as do state/federal statutes/regulations.

Regardless of how helpful, clear, or informative a broker or lender is, I would think it's best to have local counsel review the closing packet.

(This is not legal advice, merely my opinion.)

Bill S. · Answer

@Bob Higgins the state of Colorado has a standard form for a deed of trust and promissory note. See the link. I would probably use those forms unless I thought the situation was complicated by something.

If your lending attorney is familiar with RE lending and works in the space he would have those documents off the shelf to be edited for your situation.

On the borrowing end, I've always just pointed the seller to the state website and we used them with the blanks filled in as seemed appropriate. Not saying that would work for you.

Account Closed · Answer

@Bob Higgins Personally I started with a note prepared by the title company. As my experience in lending grew I tweaked it here and there. Now I have found what works for me so I send the title company the note I want to use. All other documents are pretty much standard and I can usually work with whatever the title company or borrower wants to use. Once in a while there will be a lawyer involved who wants to make changes in the note. I can normally accept these but on one occasion had to walk away from the deal.

Kyle Doney · Answer

@Bill S. We will see. I will do more research on this. More to come..

Bill S. · Answer

@Kyle Doney so you are well beyond my pay grade with that question. I would think you could foreclose on a promissory note if the note allowed for that. It would have to be a judicial foreclosure though. Now I really don't know for sure and am just guessing so get an attorney to give you a real answer. A title company might also provide some free guidance if you have someone you work with regularly. I'm not sure I totally agree with the statement that your promissory note won't lien the property. The deed of trust allows the public trustee to hold the deed and foreclose if necessary. Without that, the remedy (if allowed) would be a judicial foreclosure (think more time and more money). I would bet that a recorded lien would cloud the title to the point that a title company would not issue title insurance on the property without a lien release.

Just my 2 cents. It would be interesting to know the real answer.

Kyle Doney · Answer

@Bill S. Will a promissory note provide a lien on the property if filed with the county, or do you need to have a deed of trust to go along with the note in order to have a lien on the property? I filed my signed note (we talked about this one before) with the city and they said without a deed of trust filed, it won't lien the property when it is sold. Meaning a promissory note alone wont matter when title runs a search on the property during the time of sale. Is there any security with my note alone? The promissory note is backed by the property.

Bob Higgins · Answer

@Kathie Riedel Interesting to hear how things have worked for you ...much appreciated!@Bill S.  Aha - that link is a winner!  Thanks a bunch for passing it along.  Ain't it great to be in Colorado?

Private Lending Doc Prep ...why all the differences?

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