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Updated 1 day ago on . Most recent reply

Loans using mortgage notes as collateral
Hi all,
I wanted to see if anyone out there has ever borrowed funds using a mortgage note as collateral. I know there are HELOC loans out there but that would be more for a mortgagor. In this case, my company would be lending the funds to a multi-family value add investor and I would like to see if there is any banks or private investors that would lend using the mortgage note my company would have as collateral.
Any information would be greatly appreciated.
Most Popular Reply

We've explored using mortgage notes as collateral, and while it's possible, especially with private investors or niche banks, it's far from simple or inexpensive. Most traditional banks won’t move quickly or at all unless you're already an established, well-capitalized borrower with strong financials.
We just received a term sheet from a small commercial lender, and here are a few key terms that illustrate what it takes to secure this type of facility:
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Minimum Tangible Net Worth: $2 million
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Required Liquidity: $400,000
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DSCR Covenant: 1.75x maintained at all times
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Interest Rate: 1-month SOFR + 3.75%, with a floor of 7.5%
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Origination Fee: 1% of the line amount (in this case $200,000 on $20MM)
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Unused Line Fee: 1% annually
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Expense Deposit: $50,000 upfront, just to start diligence
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Advance Rates: Only up to 75% on performing notes with strict LTV guidelines (max 50% loan-to-value from the bank's perspective)
Banks want full transparency on the collateral, borrower, and servicing structure. You'll also need third-party appraisals, environmental reports, and borrower credit files for each pledged note. These deals can be done, but they’re not fast and not cheap.
If you’re not already running a note fund or lender platform with strong performance history and compliance infrastructure, you’re likely better off exploring private capital partners or structured investors that understand the space.
- Chris Seveney
