What is the Happy Path for a Private Money lending Transaction?

[Matthew Holtry]

BP Community,

I recently did my first private money deal (as a lender). The borrower is someone I know personally, and we intend to do additional deals together in the future. We stumbled through this first one together (relying heavily on a real estate attorney), but I wanted to reach out to the community to see if we could find a way to streamline the process and hopefully reduce transaction costs.

For this transaction, the borrower was purchasing a duplex in Pennsylvania that needed significant rehab, and he intends to do future deals in this neighborhood. For the sake of the discussion, let's say I was lending $25k and the borrower was paying $1k in origination fees (points).

Here is how the transaction went step-by-step:

1. We agreed to initial terms via email.
2. The borrower paid for a real estate attorney to draft up a note with our terms and prepare an open-ended mortgage to establish me in first lien position on the property.
3. Unfortunately, Step 2 took a long time, and the buyer had to go to settlement on the property (via an all cash transaction) before we could get the mortgage in place.
4. About 1 week after closing, the real estate attorney coordinated with the title company to get the mortgage in place. This led to a lot of additional questions from the title company (including confusion about how the funds would be distributed from me to the borrower) which created at least another 1 week delay.
5. After we got those issues resolved, the borrower had to go through settlement again (and pay a bunch of title fees, including Title Insurance) for the second time.
6. Within a few days after settlement, the mortgage was recorded, I received a check from the title company in the mail (for the points I charged), and I sent funding to the borrower.

It took about 5 weeks from the day the borrower contacted the real estate attorney to the day I sent funds to the borrower.

For those who have done this kind of transaction in the past, what does the "happy path" look like?

Here are a few specific questions:

1. Assuming we were able to process the note and mortgage at the first settlement, how and when are funds typically distributed? I had assumed the borrower would pay the $1k in origination fees (points) to the title company and I would provide the title company with a cashier's check for $25k, and then at settlement, the title company distributes the funds all at once. The real estate attorney told us the title company would collect the $1k for points but would not be involved in the $25k distribution. So how does this typically work to ensure the buyer has the funds he needs for the transaction with ensuring the lender's lien is properly recorded all at the same time?
2. For private money lenders, what title endorsements do you typically require in Pennsylvania? The attorney suggested a Closing Protection Letter and endorsements 100, 300, and 900.
3. Now that we have a note and mortgage format we like, do we still need to have the real estate attorney prepare these documents each time or can we use the existing format as a template for future transactions?

Thank you all for your insights and advice!

Matt