Lending money for use at auction -- how to protect interests?

Question

I am in Missouri, and have been approached by an experienced investor / flipper to borrow money for one of his projects that he will be at a foreclosure auction. My question has to deal with how to protect my interests. Now, I understand the concept of a deed of trust being recorded using the property as collateral. In the past, all my transactions, like buying my own house and other investment properties were handled at a title company (we don’t normally use attorneys for closings normally in MO) and the deed of trust was handled alongside it automatically.

For these foreclosure auctions, the investor has to arrive with cash in hand and will not know necessarily which property he will buy. So…how do I protect my interests before handing my money over? I can't have a deed of trust recorded when I don't know which properties will be involved, and I need to be sure that if I hand cash over that a deed of trust will be recorded after the properties are bought at the auction.

Jay Hinrichs · Answer

There are ways to do this.. I do it all the time. its just not common knowledge.

Wayne Brooks · Answer

@Larry Bowers You already have your answer.....he is not paying on what he owes, why in the world would you lend more?

With just a note you’ll have to sue in regular court, but of course if he has no money or substantial assets your judgment isn’t worth anything.

Larry Bowers · Answer

@Roman M.Yes, I was thinking like you in which a non-related property he owned would be liened. Ok, duly noted.

I need to come clean. Truth is, I have done some deals with him before and at first they went well. We signed notes & personal guarantees on all our notes. Our first few deal were secured, trust was developed, I lent unsecured and a lot more money at that, like a LOT more, and now there are problems, cuz he has been slow to pay. I haven't received a payment in several months. I am quite worried. Yes, I was stupid to continue and let him borrow unsecured and I won't be doing that going forward. But what's out there is out there.

The borrower did sign a personal guarantee along with these. Or are these not worth the paper they are printed on? What would you do?

Roman M. · Answer

sorry to break this to you but there is no way to protect your loan this way unless you put your name on the deed.

The problem with these auctions where you have to pay same or next day is that you don't have enough time to get title insurance, insure escrow and that you are a first position mortgage. A lot of times you get certificate of title a few days after the sale and how are you going to record a mortgage if you don't have the title yet.

You better off lending your flipper against other property he/she may own where there is equity and you can get lenders title policy. Then they can use that money to buy their auction property.

Their proposal is too risky and you don't even know if the title will be clean at closing.

Lending money for use at auction -- how to protect interests?

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