Raising Capital through Note Hypothecation

[Lupe Santiago]

Hi! I am looking to raise capital from some family / friends for my real estate lending business. I am an unlicensed hard money lender (legal in my jurisdiction - no broker license needed for non-owner occupied) and have a substantial sum of notes that I have lent upon.

Problem: Need to raise more money to continue lending w/ current clients, but probably can't sell the note via assignment of note & deed of trust because I'm not a broker. I operate as an unlicensed sole proprietor.

Here's my idea: Say I have 10 notes, each with principal at $100,000, with properties my borrowers purchased for $125,000 securing each note. Now I want to raise $90k from a friend so I can continue lending to my borrowers. Therefore, I would execute a note in favor of my friend for $90k, then pledge one of the notes of principal $100k as security. Upon an event of my default on the $90k note, the note & deed of trust would automatically vest in my friend, and he would step into the shoes of the lender to my borrower with the $100k obligation and property - friend is ultra secure and is basically getting 90 / 125 LTV based on not the market value, but the purchase price of borrower. That, in a nutshell, is how it would work.

Question...

1. My friend wants to be damn sure that he's the only person who has a claim on that note. How can I assure him of that when there doesn't exist an equivalent, well-established land-title recorder system for notes? How does he know I didn't already hypothecate it to someone else?

2. Any other issues or does anyone have experience in this area? I'm still trying to figure out how it would legally and operationally work!

Thank you very much!