Secured Investment

[Tom Kelly]

This will be my first investment with a partner. I do not want to own the property at all. I just want to finance the property and take my profit and go. The LLC states and I will change this, "that mediation is the first recourse" I would like to hear suggestions on how I can guarantee payment of my principal without suing and getting a judgement. I know that I will be listed on the LLC and that will show my investment. I want this to be as clear as possible, clean and easy...

Thanks  Tom

[Jon Holdman]

If I understand correctly, you're loaning someone money to purchase a property.  You're asking "I would like to hear suggestions on how I can guarantee payment of my principal without suing and getting a judgement."  You cannot.  Period.  If that's a hard and fast requirement, don't make this loan.

When you make a loan you will receive a security interest in the property.  That's done with  a mortgage or deed of trust, depending on the state.  If the borrower doesn't pay you back, you have the right to foreclose.   If the borrower is cooperative, they can save everyone time and money by agreeing to a deed in lieu of foreclosure.  I've been the lender on a deal that ended like that.  If they aren't cooperative, you must foreclose.  

You cannot have some document that seems to have the borrower sign away rights.  Such as a pre-signed deed giving you the property.  A person cannot sign away rights.  So, if the borrower does default and won't cooperate the ONLY choice you have is to foreclose.

You also seem to be considering a shared ownership approach. You seem to be considering a situation where you're a member of an LLC and the LLC owns the property. Realize that actually gives you less protection than if you were a recorded lien holder. If the deal turns into a fight, you're now fighting over ownership of a company. That's almost certain to require a lawsuit.

You're wise to ask these questions up front. Many folks get into these deals without much thought about "what if things go bad". If you do become a member of the LLC, you must consider and write down what the LLC will do when bad things happen. That goes into your operating agreement. You need to spend considerable time and though on getting that right. If its only a page or two, you've not yet put enough thought into it. What if more money is needed? What if one of you dies? Or divorces? Or marries? Or gets sued? Or just really needs money quickly?