Being a Private Lender. What to watch out for?

[Julie I.]

I am thinking to act as a private lender for someone who is living in NY.  I live in California and the property that the borrower wants to use as collateral is in Texas.  I know that I would need at least a promissory note and deed of trust from the borrower.  Does anyone know what other documents I should have to minimize my risks as a private lender?  Or what stipulations do you think I need in a contract?  Any advice would be helpful.  Thanks. -Julie

[Kris Haskins]

Hey Julie, thnx for putting this out there.  There are so many docs you can use.  But I'll tell you what I've seen.

1.  Deed of assumption-  IF your buyer get struck by lightening, you can simply record your deed that will transfer ownership back to you.

2.  Insurance doc- allows you to take out an insurance policy in the borrowers name just in case he doesn't have the property insured.

3.  Never lend to owner occupied-  Had a friend lose $20k because the borrower hired an attorney and the judge said since the loan was on an owner occ, the lender by default fell under strict SEC lending guidlines.  

4. POA- Get a power of attorney on your buyer, I've seen lenders get this at closing.

5. Watch out for bankruptcy, or get them to sign a letter saying they intend NOT to file a BK and include you- All borrower can really get you in a real bind if they file bk. THey could completely wipe you out so being at 65% ARV is a must. I'm always ready and willing to take the house back on every deal we lend on.

6.  You could buy the house and simply give him a lease option on the house.  THis way you won't have to 4close if he doesn't perform.  I've done that several times.  

these are the some of the items I've used and have seen other lenders use.  Good luck and if this info helps in any way, pls vote for my post....