What should I watch out for when providing a bridge loan?

[Jim D.]

I have an opportunity to make some money by providing a short-term bridge loan, and am looking for advice on what pitfalls or risks I might not be seeing. 

Sandra bought a property on land contract 3 years ago for $180,000, with a $20k down payment and monthly payments of $2,000. Her intention was to refinance into a conventional loan by the end of the 3 years; however, due to lack of planning and her self-employed status, she has been unable to qualify for a loan. The owners of the property are looking forward to re-possessing the property on December 1. It was recently appraised at 206,000. Remaining balance due on the land contract is around $140,000. She has a lender lined up to give her a conventional loan, but she needs 5 months to complete their requirements to qualify.

Since she is about to loose all the equity she has put into the property, she has offered me the following terms: I'll pay off her land contract, she'll make monthly payments to me of $1,200, and then in 5 months she'll refinance out and pay me out a lump sum of $160,000, for a profit of $20,000. The property will be collateral, so if she doesn't refinance, I can foreclose. Her incentive to do this is that she'd rather loose $20,000 than the entire $66,000 she has in equity.

Clearly, I need to verify the creditworthiness of the buyer, verify that they will in fact be able to refinance, verify they have strong homeowners insurance, walk the property, get title insurance, have lawyers draft the needed documents, and make sure it's all properly recorded and collateralized.

What else am I missing? Anyone here done a similar loan and had a good or bad experience? All advice is welcome.