Private Money Loans Against Notes

by Susan
(United States)

What about getting loans (private money) against notes and mortgages.

There is great potential in that.

That way a secured owner financier could get a secured loan on a secured note and not lose the income or balloon. Private lenders would have real security cause the original note is already bought down.

Does anyone do this?

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Loans against Notes
by: Anonymous

What your asking to do is something known as hypothecation, where a lender would loan money with the note being held as collateral. This is a possibility with the right numbers and term of the balloon.

Private Lenders
by: Joe the Rehabber

Independent mortgage brokers have access to private money investors. In the example given to this question, your local bank may be interested as well.

Since the buyer put down 50% and you're only looking for a 30% loan to value (ltv), which is actually only 15% on the overall property value, I would first suggest to check with your local bank, or any past lenders you've done business with.

This is a very low risk for a lender to lend $60k on a $400k property. I know my local bank does this type of lending in Michigan; Monroe Bank and Trust.

Here's the catch...

With Banks and Mortgage lenders;
The buyer who is paying on the the current note will be evaluated by the new lender just as if it was a new mortgage. They'll want to know credit scores, proof of income, the works.

Also, you as the note holder will be evaluated just the same for credit score and ability to repay the loan.

Keep in mind a bank or mortgage lender wants payment, not the property back in lieu of default.

On the other hand with private lenders...

They may not be so critical on either buyers' qualifications as much if they are interested in claiming the property in "Hope of Default".

Such as...

Acquiring a $400k property with $60k invested is low risk.

Independent mortgage lenders deal with more than just banks. They do have connections with private lenders.

A few phone calls to the related business in your area may lead you to a source. Call your local Title Company, Realtor, and Independent mortgage companies.

Angel Investors

Do a search for "Angel Investors". If the money you need is for business, Angel investors are all about lending money for start ups and venture capitol. You can post your request and decide on the offers.

Having the property for collateral would certainly be attractive to an Angel Investor.

Selling the Note?

As mentioned, selling the note was not the consideration in this case. However, it may still be an option.

Do a search for "note buyers".
Note buyers are private investors and may consider this situation as an opportunity.

As an FYI, note buyers are looking for a 30% discount to cash is selling the note comes into consideration.

Loans against Note.
by: Anonymous

I have a piece of property Unencumbered that I sold to a buyer. I gave the buyer a note and mortgage and he made a 50% down payment. He owes me over $200,000 and pays his monthly payments every month and has a balloon in 24 months.

I do not wish to sell the note cause I receive payments in interest and still get a balloon payment in the futuer.

I would like to get 30% ltv loan against the NOTE. The NOTE IS the unencumbered security for the loan. Thus a private loan against my note with me moving to second position.

Should the buyer default on the note. Then the lender to me would be first position on the property with me being the second. And should I default on the note the lender would own the total note worth 70% more then the lender invested.

Simular to Stock loans. Does anyone do these? and who?

Second Mortgage
by: Joe the Rehabber

A second mortgage is commonly called a home equity loan.

Second positions on a mortgage or a second position on a land contract are very common, but there is more risk.

When there is a default on the first position mortgage or on a land contract, the second position lender can lose their interest upon a foreclosure.

What used to be very popular is for investors to get a second mortgage (home equity loan) on their personal home and use that cash to buy an investment property.

A private lender will usually want a secured position on a property. The first position on the property is preferred.

It would be risky to for a private lender to lend money on a property in the second position, while allowing the borrower to buy a different property that may be free and clear.

Banks will give you the second mortgage on your home, but they also hold the first mortgage. Today, Banks rarely take the second position (second mortgage) on a property if a different bank holds the first mortgage.

Again, if there is a default on the first mortgage, the second mortgage will be wiped out during the foreclosure process.

Still, private lenders will loan money and sometimes take a second position.

The question is, how many private lenders do you know that will do business with you?

The answer to your question is, YES, private money loans against notes are common. An investor during their career will find at least one private lender who will lend them money this way.

It is not probable that you will find a lot of private money lenders to do business this way. There is too much risk for the lender.

Those private money lenders are usually family or relatives that know you personally and trust you.

The better way is to give your private money lender security with the first position lien on the investment property your buying.

There will be more available private lenders willing to do business with you when you offer them the first mortgage position.

Whether you're buying to hold or buying to flip a property will also determine how many private investors you'll need.

Private lenders charge more interest than banks. Private lenders will sometimes ask for a percentage of the profits on a fix and flip real estate deal.

Private lenders may not be very willing to lend the money for long periods of time when you are buying investment properties to rent out. There will be term limits.

Plan your exit strategy accordingly. You want to be able to refinance the property to pay off the private lender within the terms you agree upon.

Private money loans against notes is a great source of money when you have a convincing business plan and cash flow to attract the lender to do business with you.

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