Lend to a corporation

[Perry L.]

I am making a private loan to a corporation(contractor) secured by a 2nd deed of trust. It is a 6 month rehab project. What documents should I require from the borrower? Can I go after corporation's assets if the borrower is in default? In this particular transaction, 1st deed is a hard money lender covering 70% of the purchase price. I cover the balance of the purchase price plus closing cost plus 15K for construction cost held in escrow for mile stone release.

[Jon Holdman]

You would want a deed of trust (or mortgage, if that's what's used in your state) along with a promissory note outlining the terms of the loan. Absolutely agree with everything Bill Gulley wrote, too, especially the personal guarantee.

You MUST have this loan recorded and on the settlement statement (HUD-1) when the purchase transaction initially closes. You do realize this loan is incredibly risky, right? If I were the HML for the first and saw you as the second I would not fund the first. Your second weakens my position. Further, if I were the HML and found out about your loan later, I would immediately start foreclosure. Its specifically in our documents that no seconds are allowed because they weaken our position.

Does the borrower have ANY cash in the deal? At least 10% of the purchase? Do you have your own lawyer? If any of these answers are "no", strongly reconsider this loan.