Protecting the 2nd Lienholder Position

[Nghi Le]

I'm looking to get private money lenders to loan the down payment for my hard money loans (to do flips), but I'm wondering if that puts them at a significant risk. I'd like to know how I can best protect my private lenders.

I know that if a foreclosure happens, the 1st can wipe out the 2nd. This makes me wonder what's the point of "securing" a loan with 2nd (or more) position on a property. But I know a hard money lender that has put their money into a deal as a 9th... so they must have thought they'd at least get their money back.

Also, is the foreclosure process the only way the 1st can take control of a property (in case the deal goes south)? If I just had a single private money lender on a 1st, how easy is it for them to go through that process to acquire the property?

[Will Barnard]

Originally posted by :

Thanks for responding, guys!

What would be the max LTV you would have on a deal to protect your lenders? In the Seattle area, numbers are a little bit tight, so my target max is about 75%. Right now I'm considering doing a deal with 3 lien-holders (1 hard money, 2 private) at 72% total LTV. Does this sound pretty risky?

Typically, I don't have my lenders go over 70% LTV, however, there are a few cases where it has got ton closer to 75% and never above that. I think 72% is fairly safe in a strong market! but the LTV is not the only factor in risk, the borrower is. Since I have no details on the borrower, I can't comment on that and fully answer your question. From a straight LTV perspective, 72% is just barely over 70% so yes, safe in my book in the market today.