Private
Money
Lending: What
Documents Are Required to
Close a Real Estate Deals?
In a typical private money
lending transaction, you the real
estate investor (borrower) will borrow from a private individual
(private
lender) and the transaction is documented by a Promissory
Note and Mortgage.
Additionally, you will need to name your private lender on
your property insurance. We
also
recommend you included a disclosure statement.
Promissory Note
One of the most important
documents you will ever sign with a private lender is the actual Promissory Note that creates the loan
obligation. The Promissory Note lays out the terms and
conditions under which
the private lender is willing to lend you money and under which you are
willing
to borrow money.
The Promissory Note is where
you want to control the private lending
process in your favor and give you the borrower the control and
flexible you
may need in the future. If
the Promissory Note does not
have the right
clauses contained within it, you are potentially giving away tremendous
control
to your private lender and tying your hands in the future.
The
Mortgage is the security
document for the borrower’s performance under the Promissory
Note and usually
is secured by the piece of real estate you are about to purchase.
The
Mortgage is the document that
you will record with your local county recording office. Generally, you should have
a title clerk or
attorney record the Mortgage to be sure it is done correctly and to
avoid any
problems later.
Certificate of Insurance
You should always provide your private lender
with property insurance, including both an owner’s title policy and a lenders
title policy. You
will want to make sure your lender is
named as an additional insured on your hazard insurance policy, just
like you
would if Bank of America was your lender instead of your private
lender.
You may want to consider a disclosure statement form that
outlines exactly
what it is you will be doing with the property, how you plan to exit
out of the
property, the time line you are projecting and the risks involved with
real
estate investing and the possibility your entire plan could change
while owning
the property.
Private lending
does have investment risk and it is possible the investor could lose
some or
even all of their investment. You
need
to make them aware of these risks before you use their money for
investment
purposes.
Download
your FREE eBook titled "Discover the
Secrets of How to Fund Your Real Estate Deals with Private Lenders" and
learn how to fund your real estate deals with Private Lenders!
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