I'm giving hard money and have a question:

5 Replies

Hi everyone,

I'm giving someone a private loan (hard money) to flip a house. My loan would be recroded in the mortgage on the house as a first lender. The value of the house before the fix etc is less than what I'm lending.

My question, is it safe to give the loan to an LLC the guy have or should I insist giving the loan directly to the guy?

In any case I'm transferring money only to the title company.

Thank you.

A loan greater than the property value can be risky, if nothing goes wrong everything is fine.

If the money is going through a title company (a good idea) the money will be distributed to the owner of the security property, likely the LLC in this case.

The borrower/property owner should be LLC to avoid being a consumer loan.

The loan should be to the llc, but with a personal guarantee. Sounds like you are funding the purchase And the rehab....fund just the purchase price price, then do draws after equivalent work has been done for the Reno money..

A couple more things...

- Make sure you are in compliance with state law (is this New York?) with regards to interest rate you are charging and if that rate requires the use of a broker.  For instance, an interest only loan 10% or more in California should be done through a broker to avoid running afoul of state law and DRE compliance.

- Make sure you are getting a good Lender Title Insurance to secure your lien.  125% ALTA policies with no Western Regional Exceptions (also known as 2006 Extended Policy Coverage) are great for private bennies in California, and that may also be true of New York.  Check with attorney who is handling the closing of the file.

- Make sure you are listed as Loss Payee on the home insurance, and that you want a 12 month policy in place at time of closing, even if your loan term is longer than that.

- Make sure you get all LLC documents (Articles of Org and Operating Agmt), and that the signatory on all loan docs (Note, DOT, Disclosures) matches the authorized signatory of the LLC perfectly.

Good luck!