Author: jeff breglio (4 articles found) - Clear Search

The Risks of Hard Money Lending: Part 3 of 3

Utah Real Estate Investors Association

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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 e
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The Risks of Hard Money Lending: Part 2 of 3

Utah Real Estate Investors Association

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In Part 1 we defined various types of loans and mortgages, which you should read if you haven’t. Be clear that making a closed-end, first position loan for the purchase of real estate is a licensed activity. This is where a lot of investors are taking a big risk.

This is because many investors are loaning funds without understanding the licensing issues. And many others are getting friends and family to loan them money. This can put your Uncle Joe or Aunt May at risk as well. While there may be arguments or exemptions that permit making these loans, there are arguments that it requires a mortgage originators license! The Division has broad authority over these kinds of loans!

Just because there are arguments in your favor, does not mean you will be successful if you—or your lenders—are investigated by the Division. If they deem that you have engaged in mortgage loan origination, the fines can be very steep. Before you engage in making or getting these loans from others, you should truly understand the rules and risks, and how to structure these loans correctly. That is beyond a blog post. You should consult an attorney.

In the above examples, I have assumed that the lender earning the interest is loaning his own money. There is a big difference if you are loaning other people’s money in which you make a fee or spread. What you’re doing now is “connecti
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Trusts and Real Estate, Part 2 of 4: The Real Estate Trust

Utah Real Estate Investors Association

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This article continues our discussion of trusts, specifically the real estate trust. First, only a couple of states, like Florida and Illinois, have true “land” trusts. I won’t get into the legal details on how they are different, as that gets complicated. Just know that unless you live in these states you are NOT using a land trust. This gets confusing as many investors attend educational events where these trusts are taught or sold without distinguishing them.

The rest of us have something a little different. We call these trusts real estate trusts, asset holding trusts, property trusts or the like. They are really just simple living trusts but should be created by a knowledgeable attorney. They are designed to hold title for privacy purposes and facilitate transactions such as wholesaling or even selling real estate.

Trusts are a kind of legal entity (like LLC) that can own things. They can be a named buyer on a purchase contract and be named on county land records. Because trusts are not registered with the state, no one will
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Trusts and Real Estate, Part 1 of 4: The 3 Trusts Used in Real Estate

Utah Real Estate Investors Association

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All investors will certainly hear about the use of trusts in their real estate business. Most investors may encounter these trusts in some way. A few will use them regularly. The fact is, there are a number of different kinds of trust used both in real estate and our personal lives. This set of 4 articles will highlight the types of trusts most commonly encountered by real estate investors. Here we generally cover the 3 trusts used in REI, and then we’ll follow up with an article on each one.

The first one is most commonly called a “land” trust. This is not super accurate! Only a few states actually have true land trusts as they are very specific types of trusts authorized by the state. For the rest of us, we use property trusts, real estate trusts, holding trusts or the like. These are simple revocable (changeable) trusts designed to simply own real estate—either by contract or title. These trusts are used for privacy purposes and to facilitate many REI transactions.

The second trust is the standard family living trust. This is a much larger and complicated trust as it’s design
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