• Roderick Coleman

Have you heard of Private Money Lending??? Hmmm?

Understanding the Security Documents for Private Lending of Real Estate Loans


The source of funds and capital for any form of business and investments includes personal cash and money borrowed from family and close relatives, financial banks and private lenders. Most businesses and enterprises started with loans taken from a financial bank or private lending firm and each of the two sources require different but similar basis for lending out money to borrowers. The financial banks are financial institutions and as such, they can offer loans to individuals that are duly approved under some terms and conditions governing loan approval for various types of loan. Bank loans are either a secured or unsecured loan. Unsecured loans are loans that are given out to borrowers and applicants without the need for a real estate property, a car or any form of collateral that could be foreclosed if the borrower fails to pay up the loan at agreed time. All that is needed to get an unsecured loan approved is a good credit score or record and other important documents. Secured loans are however different in that it requires a collateral in form of a real estate property, car, or anything that could be foreclosed if the borrower fails to repay.

Basically, loans are very important as it an effective way to fund a new business or even expand an existing one. Loans are also needed for private uses such as home improvements, higher education funding and many more. However, since the inception of loans, financial banks and private lenders have always thought and looked for ways that will ensure that the borrowers repay loans, interest and any other payment agreed to by both parties. Based on this need, credit scores and record and collateral were set up for financial banks to determine approval of loan applications for each individual on the basis of credit score for unsecured loans and collateral for secured loans. Many borrowers with low credit score that indicates a bad record of loan repayment including business owners often approach private lenders for loan to be used to fund a business.


Private lenders come as an alternative to the financial banks as regards getting loans for various uses. Private lending companies or firms are non-institutional lenders that give out loans to borrowers in need of money for various uses such as home improvement or real estate property investment. Based on the loan repayment assurance that every lender wants, the private lending firms do not offer unsecured loans but secured loans that involves the inclusion of collateral as a condition for the loan approval. Private lenders are firms that are established to make profit from offering loans to borrowers and they earn by getting interests on every loans offered while ensuring that the borrower repays the money at an agreed period of time. This is a good business and the lenders know this. The real estate and property investors are the biggest clients for private lending firms as most investors are not comfortable with the terms of loan approval in most financial banks.



Private Lending and Real Estate and

Property Investment


The private lending firms are lenders that offer loans to individuals or businesses in need of cash for various purposes. By lending cash to individuals, lenders make money however, much more profits can be accrued from real estate and property investment. Real estate and property business is one of the most versatile enterprise of this present generation with lots of millions of dollars invested on a regular basis into it for greater yield and returns in long or short period of time. Private lending companies can however key into the booming real estate business and make good sales too. Funding a real estate and property investor by providing needed loan is quite beneficial to private lenders because of the possibility of earning good returns on interest, the acquisition of real estate property If the debtor fails to pay and the assurance of getting back the loaned cash.

Since private lenders can legally offer short term loan, they are most preferred to offer loans for various real estate investment. These investment involves the following:


1. Financing a long term investor that cannot qualify for conventional mortgage but planning to refinance after qualification


2. Offer loan to finance fix and flip real estate business that involves buying a building, renovating it and selling it after a year


3. Short and long term property investors


The above listed ways are some of the most potent financing and loan finding that private investors can get into to make some good profit. Real Estate is a nice investment and private lenders providing the funds will also earn well from such investments if they are well informed about how to lend investors money and make use of necessary documents to provide security for the money loaned out. It has often turned out that most private lenders do not know or understand into details, the loan security documents which are needed for foreclosure if the debt is not paid at the time agreed. It is important to know that there exist some documents that are used by lenders to ensure a lien notice on a property and even claim properties that have been used a collateral for a particular loan that is unpaid. These documents are acting as a security documents for private lenders who may be afraid or unsure of how to get back unpaid debts or loans with interests. To understand the usefulness of these security documents and how they help secure the money given out by lending firms for real estate and property investment, read through the discussion below.


There are security documents that must be well understood by all private lending companies and firms that is seeking to provide money for real estate. These documents include;

1. Promissory Notes

2. Deed of Trust and/or Mortgage


1. Promissory Notes


The promissory notes are notes that indicate and show borrower's readiness to repay a debt owed a private lending firm at agreed terms and conditions. The notes are promises that the debtor will repay the cash loaned out and as such the details of the loan are contained in the promissory notes. Promissory notes contain interest rates including fixed and variable options, maturity date, payment amount and frequency. The notes are not secured debts themselves but can work with other documents to help private lenders recoup back their money from debtors. The promissory notes are the first documents to ascertain the repayment of debt with a real estate property. The first step to achieving this is by presenting these notes that shows that a debtor promises to repay the debt. The next is to now possess a document that will secure the real estate property as repayment of debt.


2. Deed of Trust and/or Mortgage


The private lender is capable of asking for repayment of debts with a real estate property If he secures the needed and required documents called security documents. Security documents include the promissory notes but the note cannot on its own secure the property as a repayment option for the lender. The document needed to make use of property as repayment is the deed of trust or mortgage. The court of law considers the Deed of Trust and mortgage documents as the evidence that a particular individual or enterprise owes a lender some money. The mortgage document details the two parties involved in the loan; the borrower or mortgagor and the lender or mortgagee. Both the mortgage and Deed of Trust documents are similar in their use for property repayment of loan. However, there are differences. Deed of Trust details three parties involved in the transaction; the lender, borrower and the trustee which is the title company, escrow company or bank. The trustee is to initiate the process of property foreclosure process at the lender's request. In the United States, some states allow Deed of Trust only, some allow mortgage only while others allow both documents to be used.


In conclusion, with this knowledge, private lender should increase their commitment to providing fund for real estate and property investment which offer opportunities of having the cash and interests repaid with a property that will appreciate and make more money for the lender. It is now very safe and truly secured to provide loan for real estate investors because of the possibility of getting a property as a form of debt repayment upon providing all documents discussed in this article. It is a big boost to any private lending firm as real estate and property sector gets larger and juicer.


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