The Risks of Hard Money Lending: Part 3 of 3

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In Parts 1 and 2, we explained that loaning your own money could be a licensed or regulated activity. We also explained that loaning other people’s money for a fee is always a licensed activity. The other risk I see is when investors are doing these loans without the proper protections. Here is a good checklist to follow.

  1. Confirm the licensing issues for the kinds of loans you or your pocket lenders are making.
  2. Be competent at valuating the property and do so yourself. Do not rely on the borrower’s numbers. Learn loan-to-value!
  3. Always use a well-prepared promissory note (loan document). I see many that are not sufficient. You should have one drafted by an attorney, not a title company.
  4. Always secure the loan with a trust deed (mortgage). ALWAYS!
  5. Always run the loan through a title company or attorney’s office that confirms the recording of the trust deed in the appropriate position! The biggest fraud in real estate is people simply giving others money.
  6. I recommend title insurance on all first and second position loans.
  7. Oversee the project. Keep in contact with your borrower.
  8. Understand how to make modifications to the loan if necessary.
  9. Understand what constitutes default and the foreclosure process.

Lending is risky from both a licensing standpoint and protection of funds standpoint. Good hard money lenders understand how to comply with regulation and protect their money. In the next two posts will cover defaults and foreclosures.


Jeffrey S. Breglio, Esq.
Breglio Law Office and REI Mastery U
www.reimasteryu.com
jeff@bregliolaw.com
(801) 560-2180



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