Lien in second position to Hard Money Lender

[Sanford Collins]

Hello,

I'm considering providing private money for a rehab deal that is primarily funded by a hard money lender. My contribution will cover closing costs and financing costs and be approximately 15% of the total investment. My plan is to only do the deal if I can put a second lien on the property subordinate to the HML lien. My questions are:

1) Once the first and second leins are in place, can the amount of the first lein increase? Can the HML increase their lien amount for penalties, unpaid interest, anything else? My fear is that in the event the HML forecloses, they may increase their lien to an amount that squeezes me out of any profits when the property ultimately sells and I won't recoup my principle.

2) How difficult and expensive is it to file a second lien? Do I need an attorney to do this?

I appreciate any responses!

[Scott M.]

Pay a good attorney to come up with the doc's you need - this should set you back around 1-2K - but you can reuse them.

Filing the lien isn't a big deal - after you close you take the note/mortgage down to the county courthouse and generally for $25 your set.

All of that is the easy part. If your in second position your really SOL if something happens. If the HML forecloses and ends up with the property you get nothing - zero - you only get something if someone buys the HML interest and they have to deal with you to make it complete.

But if the buyer is at 100% financing and the HML forecloses and your in second position - you get zip.

Be 100% prepared to lose this money before you invest it.