Note servicer advice in Denver area

[Chris Billington]

Two of our rentals have about 10 years left on them at 4.875% - refied 5 years ago on a 15 year term. These rentals have been in service for years and cash flow nicely. I recently set up a trust for my mother which now needs to be invested in something better than a money market. My thought was to kill 2 birds and pay off the properties with some of the the trust funds and a private note back to her. All told would only be about 90K.  Any advice on this? The things holding me back would be drawing up the note properly for her and hopefully getting a note servicer to handle the monthly payments properly etc.. I have zero experience with private financing. Feel free to tell me that this is a dumb idea as it's only an idea at this point. The thought is I'd be much happier paying my mothers trust than a bank. Paying her 2.5 or 3% with no closing costs would also obviously benefit me. Seems like a win-win when you look at the interest rate she gets from the bank. I want to get comfortable with notes and I think this would be an interesting way to get started. Any advice would be appreciated. 

[Bob E.]

It is probably $100-150 to have the paperwork drafted by a lawyer just decide what the term are in advance.  

You will need a note (the loan) and a mortgage / deed of trust (securing the loan).  It is important to make sure you do both, if you got sued and only had the note you could lose the house and your mom would have no claim.  With the mortgage anyone trying to sue would see the recorded mortgage to your mom  (make sure to record it) and see that there is reduced equity - that might deflect a lawsuit in itself.

If she is lending to you below the market rate the difference is considered a gift and will count against the annual gift limit.

I would suggest paying her the market rate.  After all it's your Mom.