Security Agreements for buying notes with funds borrowed from someone's IRA

7 Replies

This is my first go at borrowing funds from a lenders IRA to buy 2nd NP notes and for some reason the concept of using a note as collateral for a prom note is confusing me. I am sure I am over analyzing this.

I am  the borrower and the custodian of the Private Lender is Equity Trust. I am going to be purchasing 3 notes for about 25k and plan to  borrow 35k(10k is going to be used for servicing and legal fees etc).  What documents do you give the custodian to complete this transaction and if anyone has any templates I could use I would really appreciate it. 

To my understanding the lender will need:

1)Direction Of Investment form by ET filled out

2) A prom note from me with terms( Here too the note for a note concept has me stumped)

3) Security Agreement-   I am not sure of the verbiage I need for this to provide to the lender to give to ET???

Will I need to fill out 3 separate agreements since it is 3 different notes?

Thanks for your advice, I really appreciate it!

@Bret Nida  

Congrats on your first IRA experience. Hopefully Equity Trust makes the process easy for you and the IRA holder. I would suggest reaching out to ETC directly and ask them about the requirements yourself. Every SDIRA provider has different processes and paperwork. This will ensure you deliver accurate and completed documents to them the first time.

I have tapped IRA funds as a private placement, i.e., the IRA receives shares of an LLC in return for capital. That's a fairly clean way to do it. I think you could do a loan with as little as a promissory note. I think that whether you use a security agreement at all would be something negotiated between borrower and lender. The custodian should be able to provide some guidance here though.

Hi Bret,

I have a few private lenders who are with ETC and for the traditional loan on a property with a promissory note and deed of trust it's pretty straightforward. ETC is very conservative and you may run into obstacles with them since this is a bit outside of the normal lines. Take Lorens advice and contact ETC initially to make sure that you they are on board with the idea before you spend much time with paperwork. 

In general you will do the DOI and a promissory note and instead of a deed of trust, you will probably want to use an assignment of collateral to collateralize your debt with the lender, should you default on the loan. Make sure your lender understands that if you default on your note with him/her, they will be getting the notes you purchased which may or may not be reperforming! 

Thanks!

I have reached out to ET and the only thing I am getting stumped on is the Security Agreement. They won't give me the content as to how they want the verbage. I know with the flips I do,  when borrowing from others using their SDIRA, I create of Prom Note and Mortgage.

They should have a checklist of requirements for any specifics. You should be free to construct your loan documents however you please. It's the IRA titling that's most important of all. For example, "Equity Trust Company FBO Client Name IRA". Verify exact titling as I'm unsure what their titling includes.

Originally posted by @Bret Nida:

Thanks!

I have reached out to ET and the only thing I am getting stumped on is the Security Agreement. They won't give me the content as to how they want the verbage. I know with the flips I do,  when borrowing from others using their SDIRA, I create of Prom Note and Mortgage.

 Try searching for "assignment of collateral agreement"

Thanks for the insight!