Finding Private Lenders and Trust Deed Investors for a Secured Second Position Note

Los Angeles County, California
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Finding Private Lenders and Trust Deed Investors for a Secured Second Position Note

Marjorie JosaphatPro Member
Santa Monica, CA · Member since 2017 · 28 posts · 8 votes

I am a Los Angeles real estate investor currently exploring the acquisition of a multigenerational property that will house my elderly parents and provide long-term rental income potential.

I am in the process of obtaining updated financing preapproval and evaluating different capital stack options. One structure I am considering is a secured second-position note from a private lender or trust deed investor to supplement a conventional first mortgage.

I am not currently seeking funding. Rather, I am trying to better understand how experienced investors and borrowers build relationships with private lenders before they have a specific property under contract.

For those who have successfully used private second-position financing:

  1. Where did you find your lenders?
  2. Are self-directed IRA investors active in this space?
  3. What terms are common today for a second-position note?
  4. What underwriting information do private lenders typically want to review before expressing interest?
  5. Are there particular investor groups, organizations, or communities you would recommend for networking with trust deed investors?

I appreciate any guidance and lessons learned from those who have experience on either the borrower or lender side.

Thank you.

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Jeff S.
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
4mo

There are a few issues with this deal, @Marjorie Josaphat. First, since the use of the money will be for a family purpose (moving your parents in), you will not be able to obtain a business purpose loan. This cuts out most private lenders, who are generally not licensed to make these loans. This doesn’t mean that no private lenders exist. It means they will have to be licensed to make consumer purpose loans and comply with all TILA, RESPA, and state disclosures.

Do a search at the California Mortgage Association website. Go to the Member Directory and enter “consumer purpose” in the search bar. A handful of lenders who make these loans will appear. Here’s a link.

The other issue is that you’re looking for a second-position loan. Few P/HMLs make these, but they do exist. One recent issue is AB 130, which passed last July and makes it almost impossible to foreclose on a second lien in CA. Without getting into the weeds, an astute lender will originate the loan with one servicer and keep that servicer through maturity. This will make it easier to foreclose on a second, if necessary, and make the loan more appealing.

Good luck to you, Marjorie.

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  • Jeff S.
    Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
    4mo

    There are a few issues with this deal, @Marjorie Josaphat. First, since the use of the money will be for a family purpose (moving your parents in), you will not be able to obtain a business purpose loan. This cuts out most private lenders, who are generally not licensed to make these loans. This doesn’t mean that no private lenders exist. It means they will have to be licensed to make consumer purpose loans and comply with all TILA, RESPA, and state disclosures.

    Do a search at the California Mortgage Association website. Go to the Member Directory and enter “consumer purpose” in the search bar. A handful of lenders who make these loans will appear. Here’s a link.

    The other issue is that you’re looking for a second-position loan. Few P/HMLs make these, but they do exist. One recent issue is AB 130, which passed last July and makes it almost impossible to foreclose on a second lien in CA. Without getting into the weeds, an astute lender will originate the loan with one servicer and keep that servicer through maturity. This will make it easier to foreclose on a second, if necessary, and make the loan more appealing.

    Good luck to you, Marjorie.

    4Reply
  • Mike GrudzienPro Member
    Lender · Eugene, OR · Member since 2019 · 2k+ posts · 1k+ votes
    4mo

    Try networking locally, in person, IRL, to form real relationships.  Find a local investors group like a R.E.I.A.

    0Reply
  • Account Closed
    Lender · TX · Member since 2026 · 164 posts · 67 votes
    4mo

    A lot of private second-position lenders are relationship-driven, so you’re asking the right questions by focusing on networking before you have a deal under contract.

    From the lending side, most private lenders and trust deed investors want to understand four things before they get serious:
    • The property and its value
    • Combined loan-to-value (CLTV)
    • Borrower’s experience and financial strength
    • Clear exit strategy

    Self-directed IRA investors can absolutely be active in this space, especially if the overall leverage is conservative and the property has strong equity. Many private lenders are less concerned with traditional underwriting metrics and more focused on asset quality, borrower credibility, and risk-adjusted returns.

    Some of the best places I’ve seen investors build lender relationships are:
    • Local real estate investor associations (REIAs)
    • Private lending meetups
    • Real estate networking groups
    • Mortgage and lending conferences
    • Existing investors who have successfully completed transactions with private capital

    As a commercial and investment loan broker, I’ve also seen borrowers overlook the possibility of structured financing solutions that can sometimes reduce or eliminate the need for a second-position note altogether, depending on the property’s equity, occupancy strategy, and overall loan structure.

    Sounds like you’re taking a thoughtful approach by exploring options before making offers. Wishing you success with the purchase and with creating a long-term housing solution for your parents.

    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    7h

    Hey Marjorie

    Happy to answer a few of these questions

    1. Where did you find your lenders?

    Here on BP, Networking, Lender conferences, Referrals from other lenders/investors

    1. Are self-directed IRA investors active in this space?

    Yes however kind of rare

    1. What terms are common today for a second-position note?

    I am seeing these at 60-65 CLTV 12 month term IO and usually a 9.99-13% rate

    1. What underwriting information do private lenders typically want to review before expressing interest?

    These are usually collateral and experience based. As long as there is equity, a clear exit, and some investor experience you should be able to obtain a second loan.

    1. Are there particular investor groups, organizations, or communities you would recommend for networking with trust deed investors?

    BP, Originator Connect, CA Mortgage EXPO

    [email protected]818-269-7983
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