Need Example Private Lending Agreement

[JJ Mayer]

Hey BP Community, hoping you can help me out...

The Set Up: Buying my 2nd buy-and-hold rental property, and this time I've found a relative who's willing to lend me $75k to finance the deal.  Having never done this before, I want to do it right (but without the cost of an attorney)

My Request: Although it's not required, I'd like to put together some sort of loan agreement between me and and this new "private money lender", especially since this relative has never really loaned so much capital before.  Does anyone have a private lending agreement they could share with me?  (preferably non-recourse)  ...I didn't see anything in the BP FilePlace, but maybe I missed soemthing that's already there???

Thanks in advance!!!

JJ

[Jeff S.]

It's not you that should be speaking with an attorney, @JJ Mayer, it's your relative who, in the eyes of the law, is now a lender. The reason you rarely see agreements on-line is that they are state specific and often require many documents; least of which is a note and a deed of trust or mortgage. Other disclosures could apply as well. These are to protect both parties and are not for the do-it-yourselfer.

If things go wrong (after all, you could do this on a handshake) both of you will become different people and your relationship might turn in directions you're uncomfortable with. If thing go really wrong, and sadly they can, your relative could be dealing with a completely different borrower/owner. Similarly, if your relative needed money and ever sold the loan, you would be dealing with a different lender. Both of you really need bulletproof paperwork that's been properly vetted and originated in your state by someone who knows what they are doing.

The generic loan documents I've seen from title companies are often terrible. My advice is to have your relative speak with either a mortgage broker, or better, one of the larger hard money lenders in your area. Hard money lenders are used to dealing with private loans. Either way, all will be appropriately licensed and should be able to provided appropriate paperwork. They will also know how to properly originate the loan for your deal and the cost should be nominal.

Also, before someone suggests it, you can go to one of the GFE websites, like Freddie Mac here, and look at loan documents. This process is not for the faint of heart. Have your relative speak to an attorney and understand what they are getting into. You should go with him or her. Then, have a licensed professional help with the loan.