Lending a friend money for a rehab

4 Replies

Hi Everyone, newbie question here. Im lending a friend money for a rehab on a home that he is about to sell. I trust him 100% and he is giving me a good rate of return on my money. My question is, and I tend to always think of worst case scenarios. But am I liable for any lawsuits on the home he is going to sell? Like lets say he spent the money on a bad contractor and the roof fell on someone. I know it sounds silly but I just want to make sure im free and clear and that my loan for the purposes of rehab on the home isnt holding me liable for anything? Ive been given a promissory note.

Thanks

This technically is a legal question best answered by an attorney. I am not an attorney and below is merely my opinion. 

The liability falls on the owner of the property and not the mortgage company. If I fall through your roof, I am not going after your mortgage company. So stay off title and you should be fine. 

Speaking of which, I know you trust your friend, but I'd cover my A just to be safe. You don't expect something bad to happen but I'd have a mortgage for the loan amount recorded in addition to your promissory note. It's just a good thing to have incase your friend dies or runs out of money or something happens. It will make it a lot easier for you to recoup some of your money worst case. 

You probably want to be named as an additional insured on his insurance policy.  

Thanks Adrien, that def makes sense!

Hi Brian, im not sure I understand, like insurance on the property?

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