Promissory note and first lien

2 Replies

I hold a promissory note on a small RE development company managed by a friend. The note is ungaranteed and as far as I understand it's junior debt that could get unpaid fairly easily. Is it a standard practice to secure the note being the first lien on a mortgage? The money is not tied to specific projects, so how would that work? (they manage multiple projects concurrently but the co does not hold RE long term)

I am guessing this would bring down the interest rate.  Asking as I was thinking of lending them more, but need a way to secure the investment. Open to other ideas/practices.

@Pepe Catala I would certainly ask your preferred title company on how to do this.  Yes, if you are lending on a piece of real estate it is in your best interest to have it placed on the title of the property.  Different states/counties will require different paperwork to do this (in Texas its a Deed of Trust) but it's pretty simple to do in most cases.  Hope this helps!

Yes, I guess the first step would be to discuss it with the borrowing ccompany to make it part of the next promissory note. They may be doing that w other investors already. Just wanted to hear of any good practices out there.