Lending - Attaching a mortgage - Illinois

5 Replies

I am doing a deal where I am lending 90K to a group. I am looking to attach a 30K mortgage to three investment properties they have with sufficient equity.

Any idea on how much this would cost?

They offered personal guarantees, but I have some other people throwing in on the 90K and they seem more comfortable with the mortgage.

Any insight or advice is appreciated.

Thanks,

Steven

Watch your syndication issues.

My advice is 1 loan for 1 property, not mingling.

Keep loan to Value to 80% and in 1st position.

Have a lawyer look at your note and mortgage.

Try to avoid a foreclosure by having a Deed held in escrow in case the borrower defaults.

@Bill Gulley  

@Dion DePaoli

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Originally posted by @Steven Segal :

I am doing a deal where I am lending 90K to a group. I am looking to attach a 30K mortgage to three investment properties they have with sufficient equity.

Any idea on how much this would cost?

They offered personal guarantees, but I have some other people throwing in on the 90K and they seem more comfortable with the mortgage.

Any insight or advice is appreciated.

Thanks,

Steven

 You can have some lending issues here, others "kicking in" that is pooling funds unless properly segregated by the notes and deeds of trust. 

Best to have each investing party take their own note on a property, 3 properties, 3 investors I assume, but I can't be specific as I don't have enough information.

How many investors? What are they each contributing? Are there any other liens on the properties, ie. mortgages? If so, how much and what is the value of each property?

How many borrowers are there? Are you lending to a business entity? How is title held on the properties to be secured....in a company name or held by individuals. 

Are any borrowers, living in any of the properties as their residence?

In your position, you might be better off making a "Blanket Loan" one loan on all there properties, this depends on the answers to my questions. 

Costs, I don't suggest you do this as a DIY deal, get an attorney, the borrowers can pay the costs of the attorney and the filing fees and settlement costs and the title search, meaning you need to get to a title company, they will tell you what the costs will be.

Next, never, never, never use a pre-arranged deed to be held in escrow, in any state, for any commercial or consumer mortgage. The agreement to do so can lead to your loan being disqualified as to the security pledged, it is circumventing foreclosure laws and you can not circumvent equitable interests by any side agreement. A cash funded loan is not an installment purchase contract.  :)     

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

@Bill Gulley  So if an investor wants to borrow money from me for a non-owner occupied house flip, its worthless for me to request a quit claim deed from him?  Thanks.

Originally posted by @Daniel Huang :

@Bill Gulley  So if an investor wants to borrow money from me for a non-owner occupied house flip, its worthless for me to request a quit claim deed from him?  Thanks.

 I understand how a lender can be tempted, but I suggest you not do that!

What you are doing is having an agreement to circumvent foreclosure laws. That then becomes an unlawful foreclosure in attempting to secure collateral, that is a civil matter and can be criminal under state laws. That may be followed by predatory lending practices under state and/or federal regulations or laws. With a note and deed of trust or mortgage, you may not make agreements that contradict the terms of the security agreement in connection with making that security agreement or at the same time the security agreement is made. The security agreement states that you are to follow a judicial or non-judicial action to secure collateral, your side agreement contradicts the agreement made and requiring a deed in lieu of foreclosure to obtain a mortgage loan is an undue advantage to a lender in practice, or predatory lending.

Lenders need to be aware of "life occurrences" death, incapacitation, law suits, divorce, bankruptcy and other matters where things can happen to a borrower or where a borrower becomes involved in something where they seek legal advice, like estate planning or a partnership matter. Their liabilities and the terms of liabilities surface, a deed in lieu of foreclosure can have consequences after the fact in disposing of assets.

Your borrower doesn't have to disagree with you, what you do and how you do things can surface at some point. Another person may become involved, like an attorney and they may act.

Part of, in fact much of, the interest you charge is justified by the risk you assume in lending, reduce the risk of foreclosure and you reduce the justification for the interest charged. 

A lender who tries to put their borrower behind the eight ball shouldn't be lending to them. 

A deed in lieu of foreclosure is the acceptance of collateral for all amounts due, an exchange of property for the cancellation of debt. The owner needs to offer the property for the cancellation of debt, the lender cannot require it! 

This means that if a lender is willing to avoid foreclosure they may simply let a borrower know that the borrower has options to avoid foreclosure, a borrower may not be directed to do anything contrary to the security agreement made or interest granted. The facts should be made clear, the course of actions that may be taken, the consequences of each action, the release of liability for a borrower or the possibilities of any deficiency judgment. Common sense should take over with most borrowers and they may select the path with the least damage. 

You can do that by providing a borrower with a letter addressed to the lender, being from the borrower, requesting that the lender accept the property for the debt. That letter needs to be mailed, postmarked and dated after any demand for payment made. 

It can then be shown that the borrower acted voluntarily and not under duress, that the borrower asked for compromise of debt, that the lender was not acting in a predatory manner or seeking the property over the payment required.   

As part of punitive actions by a court a lender can lose their creditor's position, the loss of all amounts owing as well as fines or other penalties available to the court. 

And, taking a deed in lieu, as a wrongful foreclosure, you're not really out of the woods after filing that deed, you have statutes of limitations and, if there is any fraudulent manipulation involved, the statute of limitations begins upon the discovery of the act, not when the act was committed. 

There are many "lenders" out there that have no clue as to the liability they take on in attempting to circumvent customary and prudent lending practices, perhaps thinking they are clever operators. 

Now, those lenders that read this may take another attitude, so might borrowers who may read this! It might be a lender that ends up snookered behind the eight ball. :)      

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com