All Forum Posts by: Doug Pham

 Everything needs to go through title. Your lender needs a lien on the property, promissory note and a personal guarantee. It's also important to make sure your lender is listed as a loss payee. Don't forget to pay for title insurance as well. You want to protect your lender against any mistakes a title company may make.

Yes the loan would be secured by the land initially and then everything affixed to the land as you develop it.  I am making the assumption that you are “stick” building this house. Rules would be different if we’re putting a mobile home on the property. 

Hey Doug,

Typically he would secure his interest with a mortgage and a deed of trust. I would highly recommend hiring an attorney to draw up the docs.  Better for both of you to have your agreement documented from the outset  

Hope this helps  

Thanks,

Mario

Hey Doug,

Typically he would secure his interest with a mortgage and a deed of trust. I would highly recommend hiring an attorney to draw up the docs.  Better for both of you to have your agreement documented from the outset  

Hope this helps  

Thanks,

Mario

If they want your money, @Pavan K., why aren’t they offering you a stake in the partnership? This sounds like it could be a good deal for the partners, and perhaps the bank, but a terribly risky deal for you, with little upside.

What exactly do you mean by, “There will be a promissory note drafted for the amount and the duration and interest rates”? This is not even close to the documents required for a properly drafted loan. Do you think the bank’s loan will consist of one document, drafted by your borrower? Did your borrowers mention securing your investment with a recorded mortgage or deed of trust, personal guarantees, lender’s title insurance, or anything else? Of course not. Even this is an incomplete list.

Worst of all, the main reason not to make this loan is that you will not hold a first position-lien against the property. This means that if the bank forecloses, and you can’t pay it off, you will lose all of your money with no recourse to anyone.

One option to secure your loan is if one of the partners has a free and clear property worth significantly more than your loan. In this case, you could use it to cross-collateralize your loan with a first-position lien. If their deal goes bad, you could foreclose on that property and hopefully recover your funds. If not, don’t even think of this.

No matter what, consult a qualified lending attorney to understand your legal options and ensure you have proper loan documents in place to protect your investment.