Private Money Lending

7 Replies

I am considering loaning some money for a "private money" transaction in Oregon. All of this will go through a correctly licensed mortgage company and individual.

The borrower will use the money to acquire a property with a home on it.  The home will be the borrower's primary residence.

Does anybody know of potential issues related to foreclosing on a borrower's primary residence with a "private money" loan?

Thanks,

Hey Todd, Go Oakers! I'm replying not because I have any insights for you but instead that you are in Oakland. Let me know if you want to meet up for lunch or something and chat about business.

Concerning your inquiry; I assume you mean that you are going through one of the Hard Money lenders who are basically matching up a potential borrower with private money like yourself, and of course they charge the borrower points etc as their "commission" for facilitating the deal. If that is the case then that middle man mortgage facilitator (that may be the wrong term to use) should be able to answer a lot of your question. Firstly, because I think it would be part of their job when gaining a new money client (you) that they would want to educate you about the process. If they don't know or are unwilling to get you up to speed you might look elsewhere. At that point you might just as well run a craigslist ad saying "money to lend but I don't know what I'm doing..." if they won't provide information. Secondly, if they say "you'll never have to foreclose" or "its never happened to any of my clients" once again I would back away. 

Some additional advice would be to have the borrower's payments processed thru a large third party collection escrow company. There is more of a counterparty risk to you if the mortgage facilitator is just a mom and pop company and they handle the monthly payments. The minor monthly fee of a collection escrow is "usually" borne by the borrower anyway. Have the property tax and insurance collected and paid ia clection escrow also. Make sure you are listed as "additionally insured" on the policy so if it is canceled for any reason you will be notified. Of course any decent mortgage document will have provisions for you to start foreclosure if insurance lapses. Check with the city where the property is located and see if they will send you a copy of the monthly sewer bill. If the water isn't paid it gets shut off, if the sewer bill isn't paid it just grows and grows and can become shockingly large if you have to foreclose after years of sewer non payment have gone by and become a lien against the property. I know this because?..... painful memories!

Congratulations on being at the top of the real estate food chain: when you can make money by lending money and not have to swing a hammer, manage tenants, or constantly search for deals competing against investors and homebuyers then you are in a good place indeed.

@Todd Carson you will definitely be hit by all of the Dodd Frank guidelines which is why all hard money lenders make our borrowers sign a document stating this is a business purpose loan and they will not make the property their primary residence.  Very risky from a foreclosure in the sense that they can defintely extend out the foreclosure by using every avenue available to them and if you screw up, they could make it very difficult for you to foreclose and at best make it super expensive.

@Todd Carson You should talk to a note / foreclosure attorney about the rules an regulations regarding loans on a primary residence. They are much more strict than an investment property.


Foreclosure on a primary is similar to an investment property except that borrowers get more protection on a primary. There may be additional hoops to jump through or you may need to "review them for mortgage retention options if they defaulted.

Originally posted by @Dane Fitch :

@Todd Carson you will definitely be hit by all of the Dodd Frank guidelines which is why all hard money lenders make our borrowers sign a document stating this is a business purpose loan and they will not make the property their primary residence.  Very risky from a foreclosure in the sense that they can defintely extend out the foreclosure by using every avenue available to them and if you screw up, they could make it very difficult for you to foreclose and at best make it super expensive.

dont know every HML in Oregon of course but its far and few between that will actually do an owner occ because of the reasons you state.

I would urge caution on this transaction. And make sure you fully understand the disclsoures the QM rules etc.