Help with Partner Holding Paper Strategy

8 Replies

Hi everyone, I have a partner who wants to hold paper long term for some of my deals. Sa-weeeeeet! I want to make the process as PASSIVE, painless and professional as possible for my partner and other potential partners but I've never done it before.

Specifics - my partner will hold the deed and "be the bank" on a long term amortization for me at a reasonable negotiated rate. I have to aquire the property with a combo of sufficient equity/cash flow/my own money to make my partner feel comfortable with the deal, at which point we will close and my partner gets the deed.

Questions:

1. I want to provide a PASSIVE & professional service for my partner where a third party manages the note, ie I send the payments to this company (not my partner) and they collect and we can log in on line to see status, amortization, payoff balance should I decide to refi, etc. I can't be mailing checks to my partner and managing the balance on an excel spreadsheet or bankrate.com. Where do I go for this service, and how/when do I set it up? I would assume we get in place prior to closing but I don't know.

2. My partner will "hold the paper", but who/where does the actual deed go? Does my partner actually hold the deed in a lockbox or do we send it to the registry of deeds, or the third party/bank type place that will manage the payments?

3. Can any old real estate attorney close a deal like this in NH / MA or do I need a special attorny / title company.

4. The basic lending terms are negotiated and agreed upon between my partner and I, but obviously we need to get it down on paper with a mortgage type contract that is formal and legitimate. This is where the rubber hits the road, it's the backbone of our partnership and it needs to be legally binding and representative of our intentions. Where do I go for this? Are there attorneys or third party loan service providers who specialize in this that I could go to in advance? Having this stuff set up in advance would help me reassure other potential partners that I know what I'm doing and that I can provide a passive investing experience for them.

Any help for this strategy / partnership is appreciated. On the surface it is very simple, I'll aquire a property that is a good investment for me and my partner, they'll loan me the money and the property will be their collatoral, win win. But when you are about to go and actually execute it and set it up, it's not so simple!

Brett, I'm going to address some of your questions inline



Originally posted by @Brett Cate:

Hi everyone, I have a partner who wants to hold paper long term for some of my deals. Sa-weeeeeet! I want to make the process as PASSIVE, painless and professional as possible for my partner and other potential partners but I've never done it before.

Specifics - my partner will hold the deed and "be the bank" on a long term amortization for me at a reasonable negotiated rate. I have to aquire the property with a combo of sufficient equity/cash flow/my own money to make my partner feel comfortable with the deal, at which point we will close and my partner gets the deed.

Typically, the person"being the bank" and "holding the paper" (promissory note) and the person "holding the deed" are not the same.  The exception to this is a contract for deed which I don't think you are talking about in this case, but maybe you are.  Let's assume you are not.   Think if you had a mortgage with bank of america:  you execute a promissory note (promise to pay) and and mortgage (and if I don't you can take my property which I have collateralized) but the deed is in your name.  You are the owner of the property.  

Questions:

1. I want to provide a PASSIVE & professional service for my partner where a third party manages the note, ie I send the payments to this company (not my partner) and they collect and we can log in on line to see status, amortization, payoff balance should I decide to refi, etc. I can't be mailing checks to my partner and managing the balance on an excel spreadsheet or bankrate.com. Where do I go for this service, and how/when do I set it up? I would assume we get in place prior to closing but I don't know.

Try FCI, they are a loan servicing company for private lenders, you can google them.

2. My partner will "hold the paper", but who/where does the actual deed go? Does my partner actually hold the deed in a lockbox or do we send it to the registry of deeds, or the third party/bank type place that will manage the payments?

See my answer above.  Normally you get the deed.  The closing title company will register it at the Registry of Deeds, and the original is sent to you, the owner, assuming this is in NH.  The title company also sends the original note and mortgage to your friend, the lender.

3. Can any old real estate attorney close a deal like this in NH / MA or do I need a special attorny / title company.

Strongly strongly strongly suggest you get an attorney well versed in private lending.  Can any attorney or title company do it?  Yes.  Should you use any old title company?  NO!

4. The basic lending terms are negotiated and agreed upon between my partner and I, but obviously we need to get it down on paper with a mortgage type contract that is formal and legitimate. This is where the rubber hits the road, it's the backbone of our partnership and it needs to be legally binding and representative of our intentions. Where do I go for this? Are there attorneys or third party loan service providers who specialize in this that I could go to in advance? Having this stuff set up in advance would help me reassure other potential partners that I know what I'm doing and that I can provide a passive investing experience for them.

The agreed upon terms are commonly drawn up in what is usually a loan commitment, and then this is provided to the closing title company or attorney to provide him with his framework for closing the deal.  I suggest you speak to this person early in the process because there are no doubt terms that you have not even thought to discuss.

Any help for this strategy / partnership is appreciated. On the surface it is very simple, I'll aquire a property that is a good investment for me and my partner, they'll loan me the money and the property will be their collatoral, win win. But when you are about to go and actually execute it and set it up, it's not so simple!

It's simple once you've done it many times, but there are LOTS of legal considerations that you haven't even touched on in your questions.  If you want two referrals, PM me and I'll send you their names.

Wish you luck on your deal, but if you decide to use FCI or anyone else to service the debt make sure your vet them and get a copy of their insurance.


Joe Gore

@Joe Gore do you know something negative about FCI?  Have you had a bad experience with them?  

wow thanks so much Anne and Joe too.  Enormous help.  

@Ann Bellamy,

I have a friend who was going to have FCI to service his notes and wanted me to vet FCI. I ask them for a copy of their license, and they said they would not provide it to anyone, so I decided to contact the insurance commission, and now they have started an investigation.


Joe Gore

Interesting, thanks for the heads up, @Joe Gore .  

Brett, I have seen them at trade shows, etc, have never used them.  It's the only one I know of that services private lenders, but I'm sure there are bunches of them, I just don't know of any.  Maybe Joe knows of a reputable one.

If your note is commercial, (you talk to your NH attorney about that as outlined above) to the best of my knowledge there is no licensing requirement for servicing in NH.  Here are the guidelines.

On that page, it refers to "mortgage loans" and the term refers to residential mortgage loans, however, since I am not an attorney, you should discuss this with yours.

roger that Anne.   Thank you.  Joe, please keep me posted with regard to FCI, I will call them and investigate myself as well.  Joe do you know of any alternatives?

Brett, you'll need to @mention him to notify him you've asked him a question.  Like this:

@Joe Gore 

Type @ with no space, then start typing the first few letters of his name.  when a dropdown appears below the window you are typing in, double click his name.  You can @mention people in a thread, or people you are colleagues with

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