Lending From Family member

[Will F.]

Hello,

So I was going to get a loan from a close family member for around $125K to purchase a condo or home for myself.

I was wondering what is the legit way to do this?

It does not necessarily need to be recorded but I am amortizing the loan over 30 years etc at 4.5%.

Is there an easy way to "do-it-yourself" as in write something up and just start paying him. I want do this legitimately on his side also so that he can report his 4.5% earnings to IRS etc.

I was thinking of just using a form from a place like Nolo or similar, has anyone done this before?

[Dion DePaoli]

Not familiar with the firm mentioned above.

My suggestion is simply go see a real estate attorney. DIY seems all fine and dandy until the two parties have a falling out. That is when borrower defaults or family lender attempt to accelerate and foreclose without cause or who knows what else they might do. In spite or even in accident.

The DIY thing for loans secured by real estate is pretty silly, IMO. This is one of those cases where you don't know what you don't know, so how could you know what might be an issue in the future for either party. Not to mention, you could end up 10 years into the loan and find out the documents you used are wrong for the state the property is in or the loan has some other material defect making it void and unenforceable. (you already broached the idea by not perfecting the lien)

Doing it properly under the guidance of an industry professional will help all parties involved. Both parties will have peace of mind the documents are correctly setup and fair and the transaction is done properly.

In addition, the Lender might also want to look into a Mortgage Servicing Company which will relieve the administrative burden of the loan from them. This also helps keep the relationship a bit more stable. In life, things happen, sometimes friends/family want other friends/family to understand and share in the event that may be a burden in concession. It is not uncommon for family members to often times try and miss a payment or make a payment late or try to defer payments. Having to go through an independent third party removes some of the ease of this, removing the personal tugs that come with family and friend events like this.

Good intentions often fall victim to unforeseen events. Loans are not simple instruments by nature. Many concepts need to be discussed by both parties so everyone understands the risks. This is why the loan industry works in the manner that it does. Language in the security instrument, note, and title policy, etc all affect both parties. To ignore those or avoid those for the sake of 'ease' is a disservice to both parties.

Moral of the story, by not want to make this complicated, you will make it more complicated. Be more concerned for both the borrower and the lender to do it properly and entirely. Don't cut corners. Everyone will be better off in the end.