6 Players in Private Money Lending You Should Get Acquainted With

Posted on: October 18, 2011

Categories: Other Articles

Author: lbuen

2556933612 eceb24f59f m 6 Players in Private Money Lending You Should Get Acquainted With

Private Money Lending Image by nikkorsnapper via Flickr

Hard money plays a crucial role in the business of many real estate investors. This access to fast cash allows them to make lowball offers and grab golden opportunities. If you want to thrive in this trade, it is essential that you get to know the people behind private money lending and understand their roles in processing and approving of your application for hard money loan and in the funding process. You may already be familiar with many of them since they are also the usual suspects utilized by conventional lenders and banks. Here they are:

The Middle Man in Private Money Lending

1. The Hard Money Lender or Hard Money Lending Company could be an individual or company responsible for managing your loan from beginning to end. This person (or firm) often is an entrepreneur operating the entire business, not just the loan process, but going beyond the responsibilities of a loan officer of a bank. These extensive responsibilities include:

  • coming up with your loan package, like the application, credit, income, and asset documents you submit
  • collecting and assessing title information as per requirement
  • provide advice on the appropriate hard money program they offer, properly informing you of all applicable federal and state disclosures.
  • requiring and evaluating an appraisal or other asset valuation on the property
  • coordinating title/escrow companies handling hard money loans
  • underwriting and approving your file for a private investor
  • furnishing a source of money (private investor) to finance your loan
  • assigning your loan servicer where you make payments each month
  • producing final loan documents and coordinating loan settlement or closing

The Money Man in Private Money Lending

2. The Private Investor is the most important guy in private money lending. Without him there would be no hard money loan, as he finances the money for your loan. In the simplest of cases, he could also be at the same time the hard money lender providing personal funds. However, most private investors are outside entities or individuals who have established a business relationship with the private money lending company. If you are applying for a bigger loan, the hard money lender arranges for a fractionalized loan for you. That is, he will accumulate part of the loan from a number of investors and will combine the funds into one big loan.

A number of hard money lending firms also run a mortgage pool from where they back hard money loans. With this practice, the funds are already obtained and deposited in an account ready for lending. By seeking a hard money loan from this type of funding, you do not have to worry over whether an investor would be interested in your loan. In this case, the fund manager or broker calls the shots whether or not to back your loan, and lays down the rates and terms in accordance with the pre-set guidelines of the mortgage pool they manage.

The Auxiliary in Private Money Lending

3. The Title Insurance Company is responsible for furnishing a title report on the subject property that serves as a collateral for the loan. To collate the report, they search county records for all information, judgments, liens, easements, and the like against the real estate as well as the borrower. This report will be needed by the hard money lender to find out if the property can be insured. If so, the transaction proceeds and the title company will release a title insurance policy that safeguards the investor from losses on that property in case of a defect in title. It is essential that you divulge any title defects to the title company. Keep in mind though that even if the investor is insured, it does not mean that you are also covered.

4.The Escrow Company or Settlement Services Provider is an independent third party that collects and pays out the funds under the instructions of the private investor. They are also tasked to supervise the final signing of all applicable deeds and loan documents and records with the right county office. To close your loan, most likely you have to visit the office of this company.

The Title Insurance and Escrows Specialists for hard money are typically closely associated. In fact, in many western states, the services are handled by two separate departments of one company. While in the eastern states, the services of an escrow company is regarded as settlement services and is carried out by an attorney. These attorneys extend the same services for hard money loans as they do for traditional loans. However, they may generally make a deeper probe for hard money deals.

5. The Appraiser For Private Money is a licensed professional tasked to furnish an appraisal report that states an opinion of value on the property. The report is not a matter of public record, but compiled for the exclusive use of the hard money lender. You, the borrower, can ask for a copy of the report so that you can review it.

Not all hard money deals require an appraisal as most investors will just inspect the property themselves and make the valuation. Or the private investor can just request for the less expensive BPO or broker price opinion.

6. The Hard Money Loan Servicer is responsible for sending your statements, collecting your monthly payments, and providing you your year-end tax reports on interest paid. They also keep the funds in escrow and pay them as they are due if part of your payments include taxes and insurance. In simple cases, this entity could be the private investor. But it could also be an independent hard money lending company employed by the investor to service the loan.

Getting to know the roles of the various players in private money lending is important for real estate investors so that they know how their private money loans are processed.

 6 Players in Private Money Lending You Should Get Acquainted With
pixel 6 Players in Private Money Lending You Should Get Acquainted With

LEAVE A COMMENT: No Comments Yet. Be the first to leave a reply.

Leave a Reply


Spam Protection by WP-SpamFree