Private Lending in Washington State

[Kitty Jones]

Can I lend to a customer who wants to remodel their primary residence using their primary residence AND adjacent property as collateral? They have a first mortgage (FHA) with very little equity and own the second piece of raw land without lein. They have sufficient income but their credit is questionable? What will be my legal hurdles?

[Jim L.]

Consider this.  If the lendee doesn't perform according to your contract, your recourse would typically be foreclosure.  But your payoff would typically come from foreclosure sale proceeds after the first mortgagee is paid off, along with all fees, penalties, etc.  If the additional foreclosure value of the raw land would cover your interest, perhaps this provides sufficient surety for your comfort.  If there is not enough value to cover your interest after the primary loan, fees, etc. are paid, there may be little benefit in foreclosure.  You don't seem the type to threaten broken kneecaps as a fallback.  (And there definitely is a legal obstacle for that plan.)