All Forum Posts by: Jarrod Ochsenbein

Unless this refers to a commercial property (5 or more units), this is incorrect, @Alex Brashears. A lender cannot call a default if their residential (1-4 unit) borrower takes out a 2nd, 3rd, 4th, or any other junior/subordinate loan. That’s not to say that many residential loan docs don’t contain this language. And, the lender doesn’t have to make the loan if they know this is the borrower’s intent. Once made, however, these loan terms are unenforceable unless this is a commercial property. It doesn’t matter that it might be a business-purpose loan.

A Promissory Note, DOT, Personal Guarantee, and JV agreement are hardly overkill, @Jarrod Ochsenbein. But what’s the JV doing in there? Are you a lender or a partner? We get our complete loan doc package from a lending attorney, and you should too. If the state you are lending in requires a license, you should find someone with the appropriate credentials to originate the loan for you professionally. Don’t make things up on your own and, for heaven’s sake, don’t make your loan contestable. With due respect, since loan docs are state-specific, be careful asking here which documents you should use. Your lending attorney will know.

Last, even though you seem to have enough to make a relatively safe 1st position loan, if you insist on making a 2nd (???), the 1st position lender is now your best friend. Make sure you introduce yourself to them. (It amazes me how few 2nd position lenders actually do this with us even though we welcome the calls.) Ask about their background. What’s their loan mod/forbearance policy? Do they foreclose quickly? Do they have a construction arm and also flip houses? Will they call you first if there is an issue with their loan? Take heed of the answers. They could control the future of your loan.