Finding private lender with house as collateral

[Jassem A.]

How would one go about finding a private lender that is willing to accept equity in another property as collateral? Like an equity loan from a bank with comparable rates. I'm guessing a local private lender would be able accept more risk if they would actually be interested in acquiring the property at a discount anyway.

[Jeff S.]

A home equity loan can be used for any purpose at the discretion of the borrower, @Jassem A. Private loans secured by residential real estate must be for a business purpose only or they fall under the SAFE Act and Dodd-Frank. This legislation basically precludes consumer-based real estate loans under any terms most private lenders would accept, and virtually all are getting out of that business. For these, you really need a bank. Plus, it’s unlikely you will get anything comparable to the current bank rates, as you suggested.

This said, cross-collateralizing (i.e. borrowing against one property to purchase another) is a viable strategy if you can establish a business purpose -- like flipping. Real estate clubs are a good place to meet private lenders and develop the necessary face-to-face relationships for when you get something appropriate.

Understand as well, that lenders don’t want your property; even at a discount. It’s not their focus. Sensible underwriting would generally see the property go to someone else at a foreclosure auction anyway, if it came down to it. At best, your lender would come out financially whole -- and particularly P.O.’ed from the aggravation.

Jeff