All Forum Posts by: Beth Johnson

Regardless of whether or not he used your funds to purchase the property, the use of your private loan would be to renovate a home that he indicated he'd eventually use as a primary residence. That, in and of itself, makes the loan consumer or personal use of funds, not investment/business or commercial purpose. So, you'd be responsible for all consumer protection and disclosure responsibilities as well as regulatory requirements for being licensed to do consumer loans in the state the property is in. Additionally, you'd be likely subject to any usury limitations in the state the property is in, as well. That doesn't just include the interest rate but can also include many/all loan costs as well - varies by state but can include points, title, escrow, processing fees, etc. 

Also, if you have the borrower typically sign a non-owner occupancy certification (which we always do with our loans and recommend other PMLs do) the borrower couldn't sign it legitimately because he already informed you he's planning to move into it. 

I rarely, if ever, go behind HML for the reasons stated by others. There is too punitive measures and shorter time horizon for that loan to mature and eat away at your equity buffer. In WA state, we are deed of trust state and non-judicial (with an option for judicial) and requires a Notice of Default (30-day cure period) and a 120-day Notice of Trustee Sale with cure period. I'm extremely careful about how we originate 2nds and it's not for novice lenders and it certainly is not something I would buy - even at a steep discount. Yes, I've had to foreclose on a few in 2nd and it wasn't a problem because I was behind a conventional mortgage lender who could not act as fast as we could. But plenty could have gone wrong if it were not managed tightly - both during origination and while the loan was in service. There are some states like TX where the foreclosure process is so efficient, you could lose your equity position within 30-days of the borrower defaulting on the first. So, that's a state where we would be super cautious about lending in second position.

And to @Jay Hinrichs's point, I see no safeguards for gators when teaching about gap funding, EMD funding, or any other tactic that they try and sell which tells you to get 0% interest credit cards and build business credit to be used to lend out. No thank you. I'll pass.

@Daniel Kitt - Reach out to Doss Law, a law firm that specializes in private lender law. They don't practice in all 50 states but they do have a practice in TX and can advise on how to complete this paperwork and record properly. As others have mentioned, you need to ensure your paperwork for the deed is congruent with whatever is on your promissory note. 

@Yvette Rodriguez - please be advised that TX can do 2nds (I've done them before) but they are a fairly efficient state when it comes to non-judicial foreclosure. While that is good for lenders, since the process can possibly be less than 30 days, while other states could take years. it's a hazard for 2nd lien position holders who could not be informed quickly enough to safeguard their principal before the senior creditor forecloses or don't have the capital available to pay off the 1st lien holder to preserve their loan position and avoid foreclosure. 

@Jorge Farinas Yes you absolutely could add an additional piece of collateral for more security and peace of mind.

@Roy Gottesdiener feel free to message me and we can talk more about your needs there. Would need to review your current schedule of real estate and then we can go from there! Thanks!

@Haley Cisar I suggest you explore private lending laws and regulations in FL. There are things that you need to know about in FL that are unique such as usury requirements and some types of deal structures that would require a license. Florida is also a judicial foreclosure state meaning if your loan stops performing it could take up to a few years to get your money back in court. As others have indicated, you MUST work with an attorney who knows Florida and knows private money law. I do not care if you know a flipper well, they are not legal experts and you should NEVER let a borrower dictate the paperwork for you as the lender. That's giving up too much control. 

Pick up a copy of my book Lend to Live: Earn Hassle-Free, Passive Income in Real Estate with Private Money Lending to learn all the basics to finding and funding a loan for cashflow in a safe, secure and legal way. It's available in the BiggerPockets bookstore. Feel free to reach out to me if you want to connect more. 

And as @Jay Hinrichs and @Chris Seveney mentioned - do NOT use a HELOC or other borrowed capital when starting out. That's a huge risk for newbies - and even experienced PMLs right now. They have been doing PML for decades each and I would trust their advice and guidance far more than others in this forum when it comes to private money lending.

I do 2nds all the time but it's not for everyone and there's a ton of risk to navigate. But personally in my state of WA, I can lend in 2nd position on a rental at very low CLTV and put a 1st on a new acquisition at a low LTV and I would take that loan all day, every day over a 1st position on an acquisition at 85% LTC. Just my two cents, though. If you want to brush up on PML, I suggest you check out my book Lend to Live: Earn Hassle-free, Passive Income in Real Estate with Private Money Lending available on the BiggerPockets book store. It's super comprehensive and I've been told by experienced PMLs that they've still learned a thing or two, as well! Feel free to reach out to me if you want to discuss 2nds and if it's something you'd want to explore. I never do it behind hard money and I always keep my terms short and my LTV's low. But depends on the state your lending in, too.

Lent out money to a very close friend of mine and someone I trusted implicitly. Placed too much emphasis on who he was rather than the property itself (but this investment property still had plenty of equity) and then had to foreclose on him because he went dark. Lesson learned - always bet on the horse, not the jockey. Even the people you think would never lie or walk away from their responsibilities still do from time to time. People lie, properties don't. 

@Dustin Williams Sometimes it is pulling equity out of a rental and using to acquire more rentals or flips. Other times, capital is used for capex improvements with the idea that they would refinance afterwards. We do cross-collateralization with a 1st lien on the new property and a 2nd on a rental to cover more of the purchase price and possibly some of the rehab to allow for a BRRRR scenario. Our Flynn Family Lending website talks about our 2nds. My Lend2Live website is for passive capital investors and private lenders as opposed to being borrower focused!

Hi Sean! I would suggest picking up a copy of the book I co-authored titled Lend to Live: Earn-Hassle Free Passive Income in Real Estate with Private Money Lending. It's available on BiggerPockets bookstore and comes with a ton of bonus content, too! That's a good primer for understanding all the key considerations for finding and funding a private money loan to create passive cashflow. It's a highly nuanced industry that isn't very regulated so you will need to know what you can and cannot do legally and then create some personalized guidelines around what you want to fund and what you want your returns to look like. Deal structure is very important so that you have enough equity protection to secure your principal loan amount. Once you've read the book, then I am sure you'll have more questions so feel free to connect on BP and then reach out!