Arlington, VA · Member since 2013 · 13 posts · 3 votes
Hi
Investing with a guy who needs the money to rehab a house. Not a super large amount.
Deed of Trust ties me to the house/title. I am a silent owner until the work is done and we file with the title company for a reconveyance to clear the title again.
The Promissory Note does not tie me to the house (just like lending to a friend) but it does provide a clause that covers my legal expenses should I need to take action against the guy.
I am thinking the Promissory note is better because I am concerned about being tied to the house directly in any way. Am I being too cautious on this? Like is it not that big of a deal to sign a Deed of Trust when providing money for rehab work? What do most do?
btw: I totally get and respect why the Deed of Trust is used - it ties money specifically to one house so it's cleaner record keeping/accounting and just more an organized way of doing it for the person who is asking for the money.
I don't doubt the guy - I wouldn't invest with him if I had doubts about him finishing the work or paying or anything, I just want to cover myself with the best legal document.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
12y
@Jaxi West J Scott nailed it, you should use both.
Do not be concerned about "being tied to the property" with the deed of trust. you are not an owner of the property it is only a security instrument for you as the lender. Despite the name "Deed" you have no liability as an owner of the property.
The above is not intended as legal advice for your specific situation. It's just my laypersons understanding of the law. You should have a good attorney write up the documenst for you and he or she can explain. Good luck -Ned
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
if you do only the promissory note your giving an unsecured loan. When you look at promissory notes you will notice at the top ( they will be lableled as unsecured or secured or some other form.)
You need the deed of trust for security as mentioned above.
When you record a deed of Trust you need a promissory note to spell out the terms of repayment interest rates etc.
If you only record the TD and there was a problem you would have issues. As a lender when I foreclose ( not nearly as many as I was doing 4 years ago FYI and thank god) first thing the attorney or trustee is going to ask for is the promissory note so they can do the math on what's owed what are the late payments is there default interest etc etc.
bottom line you can do a note without a TD but can't really do a TD without the note...
Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
12y
@Jaxi West , I do not know Virginia law at all but I can tell you the general rules. They may or may not apply to your situation. A deed of trust in my state is called a mortgage. All mortgages have a promissory note, and the mortgage just attaches it to a specific property. The advantages of having a mortgage instead of just a promissory note are pretty substantial. First on mortgages the first to file has rights to get their money out of the sale of property before any others. As long as the property is worth more than your mortgage and all the mortgages ahead of you, things are pretty good. If your borrower just gave you a promissory note and then died or went broke, or even got divorced, your ability to get paid may be little or nothing. A bankruptcy usually extinguishes unsecured promissory notes, but it can rarely affect a secured note tied into a mortgage. Even in Chapter 13s unsecured creditors get only pennies on the dollar and secured creditors get most if not all of their money.
Assume this guy's wife divorces him and empties his bank account, gets a order from the court garnishing all his checks that come from house sales, if you are unsecured you are in trouble. If you are secured by a mortgage the court cannot touch the part that goes to you. A secured mortgage follows the proceeds from a sale as well.
Rental Property Investor · Woodbridge, VA · Member since 2008 · 543 posts · 121 votes
12y
You're safer to do a deed. Any real estate attorney can draw one up for you.
I wouldn't worry about being tied to the property. They don't come after the lender if the home owner screwes up.
But, It's easier to just draw up note. My private lenders do it with me all of the time. I'm established and have a good track record. I've seen a lot of scummy things happen after money has been exchanged so be careful.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
12y
Yea, this is a little off.
Deed of Trust or Mortgage or Deed of Security - these are the common security instruments in residential lending. The security instrument is a pledge from the Borrower to the Lender of the collateral (the real property). The pledge is used as security for the repayment of the debt. Essentially the borrower says to the lender, give me some money and you can use my property to recover your amounts due if I fail to pay back the loan according to the note. A security instrument creates and interest in the real property for the Mortgagee granted by the Mortgagor.
The Promissory Note or Note - this is the document which details the amount of money lent and the terms for repayment. The total amount of the original loan, the interest rate for repayment, the periodic repayment timing, the period payment amount and the maturity date. Essentially this is the "I.O.U.". The actual loan document itself. The DOT is simply the collateral offered to ensure the performance on the loan.
Not trying to pick on OP but this does not seem a true statement based on the OP: "...I totally get and respect why the Deed of Trust is used - it ties money specifically to one house so it's cleaner record keeping/accounting and just more an organized way of doing it for the person who is asking for the money."
No, it does not tie money to one house [property] so it is a cleaner record keeping resulting in a more organized manner. A Deed of Trust technically has no accounting at all, it is not the "Debt" it is the "Collateral". The DOT is the pledge of collateral. The amounts due and payable and the terms for such are ONLY found in the Promissory Note, so the accounting is more related to the Note.
In addition, more than one property can be encumbered by a security instrument. I can add many properties to the same security instrument by simply providing for the legal description within the security instrument and then perfecting my lien by recording in public record against each property. Cross Collateralized Loans, loans with more than one piece of real property collateral are not uncommon but are not often used in residential settings. More commercial. Although, some lenders will cross on residential loans for rehab or construction to mitigate the risk while the property is rendered unacceptable for occupancy and some other reasons. A CC loan would have one Deed of Trust or Mortgage and one Promissory Note. The DOT/Mortgage would be recorded against both pieces of property that are pledged.
The other issue I saw in the post is a little more concerning:
"...Deed of Trust ties me to the house/title. I am a silent owner until the work is done and we file with the title company for a reconveyance to clear the title again."
A Deed of Trust grants a equitable interest from the Borrower to the Lender and gives a Legal Interest to the Trustee. A DOT contains a Power of Sale provision which is power granted from borrower to Trustee which says I give you permission to sell this property in the event I breach the contract or promissory note. A DOT does not grant you a full legal and equitable interests in the real property. So technically NO you are NOT an "Owner" in any manner. Saying you will be an owner is different than being a lender. In order to be an owner of the real property, your name or some form of your interest (through LLC or alike) has to be in title to the real property. If you have title to the real property, then you have legal and equitable rights which go with the property. If you take title with the Rehab Guy, you will either be equal to him like in joint tenants or you can segregate your interests through a Tenants In Common. Simple suggestion here is use Joints Tenants. The rights amongst all parties are equal. TIC they are not.
The idea around the re-conveyance is messed up too. If you are an Owner in title there is nothing to re-convey. You already have an ownership interest. If you are a Mortgagee, you already have an interest, there is nothing to re-convey. If you are an Owner, you sell and use a title company to close that transaction. Upon the sale, proceeds from the sale will be distributed according to the manner in which title to the real property is held. So if you have joint tenancy, you will both get a check for 50% of the proceeds. If TIC, you will get your TIC amount. If you are a secured lender via DOT/Mortgage, you will get your total amount due under the note and in exchange you satisfy the loan and extinguish your interests in the real property.
Title is cleared a moment before it is conveyed. Title does not have to be clear to market real property. In general we market real property by saying the Owner (Seller) will give clear and marketable title which means as a result of the sale the Buyer will get clear and marketable title. In that sense, liens or encumbrances on title are cleared as a function of the sale.
I don't want to speculate further from the contents of the post but there are other concerning flags in the post and I don't think it is a stretch to have some additional concerns about the setup and structure of this transaction. Based on the description of the transaction in the OP I highly recommend getting knowledgeable folks involved on behalf of each party. Too many misunderstandings and misconceptions here. Each of you get an attorney to represent your interests and have them look out for each of your individual interests.
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
12y
Hello @Jaxi West Good question. Virginia is a deed theory State, so a deed of trust is used as opposed to a mortgage, but a promissory note and deed of trust are different legal instruments used in lending. A promissory note (or note) is simply the instrument that states that he owes you money and it lays out the terms of the loan. The deed of trust serves as the security instrument that refers to the note. In other words, the note is the promise to pay while the deed of trust allows you to foreclose on a property to collect the money you are owed under the note. In either instance, you will use a promissory note. You just have to decide whether you want collateral or not. Personally, I would not lend money on a note with no security. I would get a deed of trust AND promissory note drawn up as well by a good, local real estate/lending attorney. Let the attorney close the deal as well. Without getting the deed of trust, the borrower could go out and borrow even more against the house and they would be first in line to collect against the house. Do yourself a favor and secure the loan now. On another note, you probably will get a couple of people piling on about Dodd Frank. If this is a one-time shot, you will be OK with regard to getting a lending license. If this will be something you do a lot, you'll need to get on in the State and comply with all lending laws. Good luck!
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
12y
One more note since it is mentioned in here twice and it is not entirely true.
A Mortgagee (a Lender) can be found liable for the condition of the real property. It is actually not all that uncommon in today's real estate climate.
In a case where a property is subject to renovation and through the renovation becomes uninhabitable and due to failure to finish the project then becomes dilapidated the municipality can pursue the lender for damages and clean up costs.
So, YES, they actually do go after lenders when the property owner screws up depending on the screw up, which is an elevated risk in construction lending frankly.
Arlington, VA · Member since 2013 · 13 posts · 3 votes
12y
Thank you so much for everyone jumping on this question so quick. This is quite cool to learn all this. All this information was very helpful and I understand both legal documents much more.
Okay, it seems the consensus is the Deed of Trust mainly. I also understand why the Promissory Note would be good to sign as well.
All you inform that the deed of trust doesn't cover money. However mine does.
I have actually read through both documents as he sent them to me filled out with the info since he knew it was my first time.
The Deed of Trust he sent me actually does detail the monies involved, the principal amount, the interest, the monthly payments, etc etc. what should happen if things don't go as planned, etc.
The only difference in terms of anything money related, is that on the Promissory note is it states what day each month I will get the monthly payments. But other than that, the language is equal on both documents in terms of money.
So maybe he was covering the Promissory Note legal aspects within the Deed of Trust?
I already asked him what would happen should something happen to him and he informed that his wife and daughters name are part of the business, he informed the payments are set up on automatic. He's been in business 9+ years.
I am in Virginia. He is in TX and that is where the property is.
Does this matter now in any of this? I am presuming no. Please correct me if I am wrong.
Also, I am moving from Virginia. Not sure what state yet, but will we need to redo these documents for them to be more up to date for where I end up living?
I had no idea Dodd-Frank could apply to me. Yes, this is my 1st one, but if this goes well, I do plan to do more. I can't thank you enough for the heads up on State lending licensing @DougSmith
@DionDePaoli thank you for spending so much time writing all these posts.
@JerryW thank you for the compliment. I legally changed my name a few years ago so I created it :)
@JustinPierce - that was why I wanted to also do the Promissory Note only - just keep it low key and simple for my first investment. But everyone's points make sense for the DoT.
I seriously can not thank you all enough!: @JScott, @NedCarey @JayHinrichs @JerryW @DionDePaoli @JustinPierce @DougSmith
You guys know your stuff!
I have no idea how - but if I can ever help any of you - just ask! Offer stands forever!
Arlington, VA · Member since 2013 · 13 posts · 3 votes
12y
@DionDePaoli
All of your info was exceptionally helpful.These are things that were actually included in the DoT or he told me / typed me back in an email.
Interestingly, you pointed out the few things I was concerned about - enough for me to come on BP to ask my question before I signed anything.
I am not a home owner myself, so a ton of this info is really very new to me - stuff about title's specifically. For some reason, I find it very complicated. I don't get why so much is tied to a title of a house, why rehabbing affects it, etc.
So I get extra concerned when I am going to sign a document that keeps referencing 'title' and the DoT stating that we will have to file for a reconveyance once the work is done to clear the title again. That language is in the DoT.
The legal document is attorney drafted but it is a standard form - from LawDepot.com The copyright shows 2002-2014. On the DoT, his company is listed as the Trustor. I am listed as the Beneficiary. And he is listed as the Trustee.
I just wanted to personally thank you for all the posts you made and provide a bit more detail. You should teach this stuff you know it so well.
The idea that your DOT has Note function within it's pages is cause for DIY concern. A DIY Note and Security Instrument may not be enforceable if a bunch of edits are being made by those who are not so familiar with what they are editing. This guy set these up and either he is ignorant to proper setup or he has another agenda.
The two documents do two different things. While you can have a DOT which includes some note ideas, they are recognized as two distinct and separate documents in purpose and function. A Note may be recorded behind a DOT but it is not required.
In the above post about the DOT you mention the borrower has himself as the Trustee. That is a big NO. The Trustee is the independent third party who holds in care the documents and who acts on the power of sale vested in them by way of the security instrument. The Trustee is not to have any affiliation to either the Lender (Beneficiary) or Borrower (Trustor), they are a disinterested third party. They are certainly not the Borrower who is supposed to pay the money back.
Honestly, this really sounds like a horrible idea and in my opinion you need to walk away from this entirely. You are not ready to be a Lender, I don't think you understand enough about what it means nor how to fulfill your obligations. On top of all that, this DIY activity by both parties is pointing this thing in the wrong direction. It sounds like a train wreck waiting to happen.
Rights of survivorship to the company may not be some safety-net on collecting the monies due. He has set up the loan to be to his company not his person. Do you understand what that really means in terms of enforcement and collect-ability? (I am guessing NO).
Will you have Due On Sale or Alienation? His wife and daughter (unknown age) are members of the company? So, you didn't look at the Articles of Incorporation to verify this? How do you know title to the real property is or will be clear and you get first position? Who is going to review the Title Commitment for you or will you simply take his word for it? Does the borrower need to maintain insurance? What happens if he doesn't? What about taxes? How many payments can he miss before you start foreclosure? What about bankruptcy risk, have you looked into his capacity to file BK and create havoc to your collections? I could literally ask a hundred more questions, they are all intended to be little glimmers of ideas that I know are foreign to the OP on purpose. You don't know what you don't know and that can be dangerous.
This idea of filing for a re-conveyance once the work is done makes zero sense. There is nothing to re-convey, as I already stated. So again, either he is ignorant to how this all works or he has ulterior motives. Either way, the fact this idea came back up and is being pushed is further evidence OP is not ready for this and this transaction setup looks like a train about to fall off the rails.
If the documents were from LawDepot an attorney likely didn't do much of anything. The website has some template form which plugs information into it from the web user. It is more likely the Borrower did this and told you an attorney drafted it because it is from LawDepot.com - which is not an Texas attorney website, it's a self help document website. So, that just sounds like a bunch of hogwash. If an attorney did list the Borrower as the Trustee, that attorney should be fired and a new one who knows what they are doing should be sought out.
I don't want to spend too much more time on this post. In my opinion, as I have stated, walk away. The Subject Property, the Borrower are in a different state than you. You don't understand title to real property, you don't understand the documents and you don't really understand some other pretty basic ideas about being a Mortgagee/Lender. It's not even really clear how you came into this deal. This just sounds like an incident waiting to happen which likely will not be worth the risk. That is just reckless and silly investing.
The grantor of a deed of trust can not be the trustee! The lender appoints the trustee. Don't fund anything.
After all that's been said here, well, here's the short of it.
A note evidences the debt created, the deed of trust perfects a security interest in the collateral assigned. Without perfecting you security interest by filing the deed of trust you have no collateral, that was drilled enough above.
You don't sign anything on a deed of trust, you're the lender/beneficiary, only the borrower grants the security interest by executing the deed of trust.
There is no reason for a lender to sign anywhere on a promissory note either, at least at its origination as the debt is created by the borrower, not the lender.
I'd say your friend is really uniformed and trying to make things easy for you, keeping you out of the loop or, he may not be such a friend as what you have mentioned may not be enforceable under various circumstances.
The other issue is that all note terms are not generally required on the deed of trust nor is the note filed. The deed of trust must be described in the deed of trust only to identify it sufficiently so that the deed secures that note.
The deed of trust can state;
This deed of trust is made of even date with that certain promissory note in the original principal amount of twenty five thousand dollars bearing interest at ten percent per annum with all amounts of principal and accrued interest together with any other amounts set therein as may accrue, shall become fully due and payable on the first day of March, 2015. (Example. This fully and sufficiently describes the note made to secure that note) Unless there is a requirement by state law to describe monthly payment amounts, due dates, recourse matters or other specifics, it's better not to go there.
Another matter, I know you have a friend here, but this should be business.
For a rehab, with significant money at risk, you should really be using a "Future Advance Note", this allows money to be advanced as needed on the project. What happens if you fund 40K on day one and his wife spends some or he does on non-project costs? What happens if he gets hit by a bus? Where is your money, it's not in the project! We can go into this if there is significant money involved, more than you can afford to lose or wait for beyond your planed loan period.
Yep, says a lot when someone legally changes and picks out a cool name to their personality!
Go see an attorney, usually a title company may assist you, but this is not for the two of you to do as a DIY thing. :)
Arlington, VA · Member since 2013 · 13 posts · 3 votes
12y
@DionDePaoli and @BillGulley
Thank you very much for explaining so much more! I am quite embarrased on my ignorance, I had mentioned that I was brand new to this, so you are 100% correct @DionDePaoli, that I don't know a lot of the terminology or what everything means.
At the same time, I wasn't aware I was going to need to do so. I thought this was going to be a simple loaning transaction. So the most I expected was a Note of some type. All this DoT threw me off and it was from that, that got me to come on BP to ask my question to begin with. So in a way, I am very glad it did, because you all came back with a TON of information which was sooo helpful to learn!
I learned more by everyone's response back to my first post and then yours and @BillGulley's here on my 2nd reply back, than I have learned since I got into this via MyHouseDeals.com.
Where is the course for the lender? There are hundreds of courses for wholesaling, for flipping, for renting, etc. There is 0 course out there to explain how to be a lender and know all this stuff. I joined MyHouseDeals.com and they have a variety of trainings in the membership, but again, none for being an investor/lendor. It's quite frustrating, but I am very glad you guys all took a ton of time to type all you did and teach me all this. It would be great if all you put a course together on this. Many would buy it!
A few comments on what you stated:
I'd like to clarify that he is not my friend. I met him via myhousedeals.com - I had listed myself as an investor, he called me/emailed me, as did tons of others of course. That is how myhousedeals is set up if you are a paying member. He and I have been emailing mainly.
I do believe he knows nothing about what every point on the legal document states. He just tells me they are attorney drafted when I ask questions about certain paragraphs on the documents. He has offered his real estate attorney, but I would never use his of course.
But I don't think he has a hidden agenda. He has been great to wait on me when this was supposed to be done 2 weeks ago. He was also willing to work within my shorter loan time, which was significantly shorter than the average loan term that I have heard others talk about. But I don't know, you could be right.
After everyone's 1st reply back to me, I decided I was going to hire a real estate attorney. I was going to be calling today to do that. Thank you for saving me the time and not making me look like a fool to the attorney. I was planning on having the attorney review the documents that he provided and see what needed changing, or if any of this was even good, and from there make my decision if I was going to invest with this guy. Thank you so much again @DionDePaoli
Many entrepreneurs use legalzoom.com. Those are attorney drafted documents. So I thought legaldepot.com was similar. I didn't even think to go on the website. So thank you for taking the time to do so, to let me know it's the web user who inputs the info and it's just a template. I feel quite stupid at this point. But this was an incredible education for me and a valuable learning situation. I consider myself sharp and savvy - but clearly not in this arena.
You guys took enormous time to make sure I was fully informed about why I should STOP. I can't thank you enough!!!!
I was having second thoughts on all this since everyone's 1st reply back but was going to wait to see what the attorney I would hire would say. But I am just going to forget this entire deal and email him today and let him know I am not doing this.
You are right, I am not yet prepared on all these things, @DionDePaoli. I am very glad you stated that so directly. Huge stopping point for myself to realize there is much more to learn before I invest. I thought I was prepared, because the way they describe this in general, via myhousedeals.com it sounds like it is simple. But as you pointed out, what you don't know to ask is just as important as what you do know. Thank you for providing the list of questions in the paragraph - those are the 'don't know questions' I would have never thought of, and they are all excellent of course.
If I ever do decide to do this, I will be much better prepared next time. And I absolutely will have an attorney that I hire draft the documents. I am very grateful for the extra time you gave to this @DionDePaol
@BillGulley thank you for not just agreeing with Dion DePaoli - but further explaining things your own way. Each explanation teaches me something new.
So how do you guys all know this stuff? How did so many people on BP know all this information? This can't be a trial and error learning situation for all you guys to know the exact same stuff and know so much of it. So, where do you go to learn this? Can you provide a resource? This is a huge opportunity for any of you to teach it because I would be the 1st to buy it!
A thank you doesn't seem enough, but again, thank you.
Have a super night!
Jaxi :)
I'd suggest you take down the site information listing you as an "investor/lender" if there is any such implication.
You can click on someone's name to go to their profile, you can see their experience and bio for most.
You'll need to drill a little deeper to see the difference between good and bad advice on any internet site, you need to do your due diligence as to who you take advice from.
Connect with those you trust. I take short questions or info by PM but if it's a lengthy or involved matter I prefer to address them in the forums so as to benefit as many members as possible......otherwise, I'd not ever get off this thing!
Glad to hear you won't be doing this deal, rehab or construction lending can be risky but profitable too.
I think you're right about there not being any good beginner lending materials. You'll find that gurus generally stick to equity financing transactions as cash lenders usually have attorneys and mortgage types available to them.
I've threatened to write a financing book, the problem is that financing is very involved, it's another industry full of regulatory issues, prudent practices, various applications and concepts, so no book will do it, it would take volumes to give instruction and by the time you read something, there can be changes.
However, don't give up on lending. Read the BP posts as to the financial aspects. No one will learn lending or notes overnight.
Read and ask questions!
Lastly, as to forming a business entity, I'm not a fan of internet legal form sites, IMO they are at a minimum threshold of getting started without addressing specific administrative issues. Forming a business to loan money from may not be a good idea unless you have really deep pockets to set up a mortgage brokerage or hard money lending operation that is compliant in your state. With a company, you'll be in the lending business and may the be subjected to tons of regulatory requirements. So, again, see your attorney.
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
12y
@Jaxi West , I'm late to this party, and was becoming concerned as I read through the posts, because it was clear you didn't yet have all the concepts down. Don't be embarrassed, at least you asked questions BEFORE you did the deal instead of afterwards. Real estate conveyancing and lending is very complicated, and you are right, there are no "How to lend money" courses. Or actually, there are, but I strongly advise against them.
Bill Gulley and Dion dePaoli have given you great advice and much food for thought and avenues of learning to explore.
Here is a way over-simplified explanation of the promissory note and mortgage / deed of trust:
Joe Borrower signs a promissory note that says" I will borrow X dollars from Jaxi West, and will pay it back by X date under X terms with X interest making payments of X." Joe signs it, Jaxi doesn't (usually)
The mortgage or deed of trust says: "And if I don't meet the agreed terms in the said promissory note, Jaxi can foreclose on my property Y (and maybe property Z as well) and it will be sold to pay the debt, because I'm pledging those properties as security". Joe signs it, Jaxi doesn't.
This is why you can have a promissory note without a deed of trust, but can't have a deed of trust without a promissory note.
Glad you are not doing this deal until you are better educated, it makes me crazy when sophisticated borrowers borrow from newbie unsophisticated lenders without making sure they completely understand the risks. Which is almost impossible to do anyway, it takes a while to learn all this stuff.
Good luck, keep reading and asking questions. Don't lend yet. :-)
Arlington, VA · Member since 2013 · 13 posts · 3 votes
12y
@BillGulley
I had already taken my name off the investor list last year, as so many would email or call you, I figured I could just seek the people out myself.
I will spend more time on BP to learn from, that is for sure!
Good points on the course for lending.
Thanks again for all the help.
For anyone else who is reading this, there is no more need to reply with info or advice. Everyone thus far was super helpful and I am no longer doing this deal.
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
12y
Jaxi, sometimes it's evident that the original question has been answered, but sometimes more contribution on a thread is offered for the benefit of all the other people reading the post, and in particular, new investors.
I agree.. People keep posting if you have insights to add!
I'm thinking about lending money on a flip and potentially receiving money in the future, so I want to know both ends of it.
For one potential flip opportunity, I've been asked to lend on 'repairs.'
In that case, a general outline would be:
Scenario: Buyer wants Investor to fund Repairs for a house Buyer will buy from Seller.
1. Investor asks for a promissory note and Deed of Trust that the Buyer signs. I'm assuming a title company can handle the creation of both of these documents at the time the Buyer completes sale from the Seller. However, I've read from Michael Blank's post on "Syndicating Flip Deals" that not all Title Companies can do this?
I've also heard that Buyer does not choose the Title Company, but Seller does?
So if the Seller's Title Company cannot / will not issue promissory notes on behalf of the Buyer for Investor, does the Investor find a real estate attorney to draw up the promissory note and Deed of Trust and ask the atty to record the documents with the appropriate courts?
2. If Investor provides funds for the repair, the note should be an Future Advance Note and the money should be held in a repair escrow account through the title company? If that's the case, does the escrow company require 'receipts' or invoices to issue money? Or does that depend on the language within the Note?
4. If the Buyer is also using a bank as Lender for the original purchase, then I'm assuming that that Lender, particularly if it's a bank, will get first position and the Investor will get second position?
Alright.. Looking forward to learning more from anyone who can add more insight! Thanks.
I agree.. People keep posting if you have insights to add!
I'm thinking about lending money on a flip and potentially receiving money in the future, so I want to know both ends of it.
For one potential flip opportunity, I've been asked to lend on 'repairs.'
In that case, a general outline would be:
Scenario: Buyer wants Investor to fund Repairs for a house Buyer will buy from Seller.
1. Investor asks for a promissory note and Deed of Trust that the Buyer signs. I'm assuming a title company can handle the creation of both of these documents at the time the Buyer completes sale from the Seller. However, I've read from Michael Blank's post on "Syndicating Flip Deals" that not all Title Companies can do this?
I've also heard that Buyer does not choose the Title Company, but Seller does?
So if the Seller's Title Company cannot / will not issue promissory notes on behalf of the Buyer for Investor, does the Investor find a real estate attorney to draw up the promissory note and Deed of Trust and ask the atty to record the documents with the appropriate courts?
2. If Investor provides funds for the repair, the note should be an Future Advance Note and the money should be held in a repair escrow account through the title company? If that's the case, does the escrow company require 'receipts' or invoices to issue money? Or does that depend on the language within the Note?
4. If the Buyer is also using a bank as Lender for the original purchase, then I'm assuming that that Lender, particularly if it's a bank, will get first position and the Investor will get second position?
Alright.. Looking forward to learning more from anyone who can add more insight! Thanks.
I'm also curious as to the answers. What did you ever learn? Did you happen to open other threads on these questions?
I agree.. People keep posting if you have insights to add!
I'm thinking about lending money on a flip and potentially receiving money in the future, so I want to know both ends of it.
For one potential flip opportunity, I've been asked to lend on 'repairs.'
In that case, a general outline would be:
Scenario: Buyer wants Investor to fund Repairs for a house Buyer will buy from Seller.
1. Investor asks for a promissory note and Deed of Trust that the Buyer signs. I'm assuming a title company can handle the creation of both of these documents at the time the Buyer completes sale from the Seller. However, I've read from Michael Blank's post on "Syndicating Flip Deals" that not all Title Companies can do this?
I've also heard that Buyer does not choose the Title Company, but Seller does?
So if the Seller's Title Company cannot / will not issue promissory notes on behalf of the Buyer for Investor, does the Investor find a real estate attorney to draw up the promissory note and Deed of Trust and ask the atty to record the documents with the appropriate courts?
2. If Investor provides funds for the repair, the note should be an Future Advance Note and the money should be held in a repair escrow account through the title company? If that's the case, does the escrow company require 'receipts' or invoices to issue money? Or does that depend on the language within the Note?
4. If the Buyer is also using a bank as Lender for the original purchase, then I'm assuming that that Lender, particularly if it's a bank, will get first position and the Investor will get second position?
Alright.. Looking forward to learning more from anyone who can add more insight! Thanks.
I'm also curious as to the answers. What did you ever learn? Did you happen to open other threads on these questions?
#1. I don't go to other threads or member content, not even BP content usually. But I did for your post, my BS Meter exploded without going to his other links chasing down his "program" of how to. I suggest you not get 4 "investors"!
#2. Yes it's a Future Advance Note for construction. Some title plants offer loan disbursement services, yes the require receipts and will spot check a project to ensure work and materials paid for are in that project. Terms of disbursements are in the note for future advances.
What happened to 3 ?
Institutional lenders will require a first position for construction lending, anyone else will be behind them.
What did I ever learn? LOL, I don't have time left in my life to address that and you don't have time to read it.
I'm sure I have discussed construction financing in other threads.
What you read about financing from posts in public forums or blogs is usually wrong, there are key members with finance experience; Brian Burke on syndicating, Dion DePaoli on note brokerage, various lenders working as loan officers speaking to their loan programs or loan requirements, our attorney members, our accountants/CPAs in their domain, perhaps a few others are more reliable than most, but the creative ones, gurus or the average investor guy isn't going to be a reliable source for technical financial information. You need a good BS Meter in publicly generated content. :)
