Investor · San Diego, CA · Member since 2017 · 16 posts · 9 votes
Hi
I am going to loan some money to a flipper as a Hard Money Loan. Looking for an escrow company to handle the paperwork for adding my name as a second lien on the property.
Any recommendations on a local company who would do that? I called a couple of places but they said that they don't handle this kind of transaction.
From the way you phrased your question above, @Anurag Bhalla , I'll guess you were asking the wrong question since this is what all escrow and title companies do.
You don't add your name to a second lien on a property. You create a note, a deed of trust, and a handful of other documents that protect you as a secured lender. If one lien (i.e. the deed of trust) has already been recorded, then your lien would be recorded next and you would be in second position.
Any escrow and title company can handle this transaction for you but not all have paperwork that will adequately protect you. The notes and DOT's from most title companies are terrible. They will also have no idea what a Use of Loan Proceed Statement is. You should require this document as well as a personal guarantee, a 1003, and a handful of disclosures. A lender's title policy and also hazard insurance naming you as the mortgagee is mandatory. See this thread for a better list: Private Lender - Forms Required??
Lending is easy after your first loan but it's not a do-it-yourself process. Depending on your terms, your loan could be usurious in CA. I strongly suggest you ask either a licensed local hard money lender or licensed CA real estate broker to legally originate your loan for you. They will have the proper documentation and are easily found at any real estate club. Many will do this for a small, borrower paid fee. (Not a solicitation. We don't do this).
Housing sales are slowing down and properties are taking longer to sell. Prices are general flat yet many flippers are still overpaying. This is not the time to be loaning money in second position if you've never done this before. Actually, second position is never a good idea, but that's my opinion. Hope your borrower is experienced, Anurag. Good luck.
Hope you are not giving the full amount up front rather than draw process. @Jeff S indicated the markets are changing so one needs to be very careful. Have the borrower justify the amount of the loan with documentation.
Hope you are not giving the full amount up front rather than draw process. @Jeff S indicated the markets are changing so one needs to be very careful. Have the borrower justify the amount of the loan with documentation.
Absolutely! need to tread very carefully. I know the borrower and I understand the project quite well. There is ample profit cushion for the borrower to pay back.