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Updated about 6 years ago on . Most recent reply
Being a hard money lender. Should I do it? Advice?
Hey All,
I have been approached to act as a hard money lender on a small property (less than $100k all-in) close to where I live. I’m intrigued and am considering doing it, but have never done this before. I have experience flipping, but not lending.
I like this because I can easily check up on the property, have knowledge of rehab costs, etc.
Can anyone provide any insight on this? If I do it I certainly want to make sure I do it correctly and if it works out well I’m sure I’d want to continue doing it.
Thanks,
Mayer
Most Popular Reply
There are some good suggestions here already, and I will add one more, given the circumstances, which is that you have experience, and they don't. You will probably be tempted to share advice, but you need to resist the urge. It's a bit arcane, but by offering advice, you may be opening yourself up to a situation where it can be construed that you were actually not just a lender, but rather a partner. If that is the case, then you are liable for building errors (10ish year tail), code violations, civil issues, etc, basically you are a 'partner' in anything stupid they did, so you are liable, and potentially for 100% of the error (you'll be rolling the dice on the joint and several thing). Therefore, my advice is: offer no advice.
Read more here:
https://geracilawfirm.com/lender-beware-the-risks-...
and here:
https://www.cnbc.com/amp/2017/03/09/buyer-beware-t...
Note the lender getting wrapped in/sued.
And (especially) here:
http://apps.americanbar.org/abastore/products/book...
@Yonah Weiss is absolutely right about the value of a lawyer. And the concerns about NJ jurisdiction, and the #s here allowing walking away are valid as well (we don't do 100% financing for that reason).
Although it looks like their site may be down at the moment.
This still may be a good, or even great deal. Just go in with your eyes wide open, hope for the best and plan for the worst. We wish you well!