Private Lending Due Diligence

[Christine Prelaz]

Hello - I am looking for a due diligence checklist and/or advice for private lending (as the lender).  Thanks!

[Joseph Fradelakis]

Not my own checklist. I GIVE CREDIT TO CAMAPLAN for the checklist.

1. Title Insurance

   Require title insurance on the property – make sure you know who owns it and what is already owed!

2. Professional Paperwork

   Use professional paperwork – promissory note, mortgage/deed of trust, Assignments of Rents, Confession of Judgment, Deed in Lieu of Foreclosure, Guaranty Agreement, etc.

3. Insurance

   Verify with the insurance company that you are insured in case of a property or liability loss.

4. Value

   Know the value of the security and the market conditions – evaluate at least annually.

5. Exit Strategy

   Know your borrower’s exit strategy – sell, re-finance, etc.

6. Plan

   Know what you will do if the borrower dies or walks away.

7. Key Man

   Do you have “key man” insurance on the borrower?

8. Financial Health

   Understand the financial health of the borrower – do you have any indicators that show the deal going bad?

9. Foreclosing

   Plan on foreclosing – know the cost, time, and who will do the actual foreclosure.

10. Draw Schedule

    Use a draw schedule if improvement money is in the deal.

11. Taxes

    Verify taxes are paid annually; unpaid taxes can wipe-out the loan.

12. Verify

    Verify that any association fees, senior liens, etc. are paid annually.

It's a start. It's up to the lender how hardcore they want to be. This list was from a website but even then they don't mention getting an APPRAISAL so you have an accurate LTV. And if there are goiing to be repairs and you're lending on the After Repair Value, you may want more homework for accurate repair estimates, etc.