Promissory note

[cprao]

I am from California.
I plan to borrow money from a friend to rehab an investment property that I own - 100%. What are my options and how do I proceed to provide a collateral to the loan?

1. Promissory note - if this is the option, should this be registered or notarized?
2. Should I add him in the deed of the property? If yes, what is the procedure to do that kind of service?

or any other options?

Thoughts?

 

[Taxing Matters]

I am from California.
I plan to borrow money from a friend to rehab an investment property that I own - 100%. What are my options and how do I proceed to provide a collateral to the loan?

1. Promissory note - if this is the option, should this be registered or notarized?
2. Should I add him in the deed of the property? If yes, what is the procedure to do that kind of service?

or any other options?

Thoughts?

What kind of security does the friend want? If I was the friend, I'd at least want to hold a mortgage on the property and charge at least enough interest to meet what the IRS would impute as interest income on the loan along with a promissory note. Just getting a promissory note doesn't provide the friend with any security from which to collect if you don't pay. In other words, a promissory note doesn't provide any collateral on its own. On the flip side, you probably don't want the friend to be a part owner of the property. Once you make him an owner, you invite the problem that he can make it difficult for you to get him off the title without a signficant payoff. Start by asking the friend what he or she wants. If you are ok with what the friend wants, then that resolves your issue, other than figuring out exactly the right way to do it, and for that you ought to see an attorney for help.

 

[quincy]

I am from California.
I plan to borrow money from a friend to rehab an investment property that I own - 100%. What are my options and how do I proceed to provide a collateral to the loan?

1. Promissory note - if this is the option, should this be registered or notarized?
2. Should I add him in the deed of the property? If yes, what is the procedure to do that kind of service?

or any other options?

Thoughts?

Don’t add him to the deed. What other way do you have to pay back the loan? Are you employed?

 

[LdiJ]

I am from California.
I plan to borrow money from a friend to rehab an investment property that I own - 100%. What are my options and how do I proceed to provide a collateral to the loan?

1. Promissory note - if this is the option, should this be registered or notarized?
2. Should I add him in the deed of the property? If yes, what is the procedure to do that kind of service?

or any other options?

Thoughts?

Adding him to the deed would not normally be considered to be appropriate. Giving him a lien against the property might be appropriate. I promissory note should be involved no matter what.

I do however think that you need to get an attorney involved...for both of your sakes.

 

[adjusterjack]

I plan to borrow money from a friend to rehab an investment property that I own

How much money?

Why can't you get a loan from a bank or mortgage company?

Can your friend afford to kiss the money goodbye if you go broke?

 

[Taxing Matters]

I promissory note should be involved no matter what.

I disagree. For the lender the ideal situation would be a mortgage lien coupled with a promissory note. The reason is that the promissory note is the contractual obligation to repay the loan, and the mortgage is what secures that loan. While a loan instrument other than a promissory note may be used, the promissory note facilitates the lender in selling the mortgage to someone else as a way of cashing in on the investment. You may not have realized it, but it's likely that any mortgage you ever had from a commercial lender also had a promissory note as part of the loan arrangement. It's very common for commercial mortgage lenders to do. The general public assumes that the mortgage lien document that gets recorded in the state or county recording office is the loan document. But legally, the mortgage document is simply the pledge of property to support the loan that is made, and the loan document is not the mortgage. In other words, the public thinks of a home mortgage loan as a single document when, legally, it is two different things. Both the loan obligation (e.g. promissory note) and the mortagage instrument may be included in the same set of documents that the borrower signs the paperwork, but while to the borrower it feels like one single document, legally there are two documents involved.

 

[LdiJ]

I disagree. For the lender the ideal situation would be a mortgage lien coupled with a promissory note. The reason is that the promissory note is the contractual obligation to repay the loan, and the mortgage is what secures that loan. While a loan instrument other than a promissory note may be used, the promissory note facilitates the lender in selling the mortgage to someone else as a way of cashing in on the investment. You may not have realized it, but it's likely that any mortgage you ever had from a commercial lender also had a promissory note as part of the loan arrangement. It's very common for commercial mortgage lenders to do. The general public assumes that the mortgage lien document that gets recorded in the state or county recording office is the loan document. But legally, the mortgage document is simply the pledge of property to support the loan that is made, and the loan document is not the mortgage. In other words, the public thinks of a home mortgage loan as a single document when, legally, it is two different things. Both the loan obligation (e.g. promissory note) and the mortagage instrument may be included in the same set of documents that the borrower signs the paperwork, but while to the borrower it feels like one single document, legally there are two documents involved.

Ok, then what did we disagree about? I am confused.

 

[Taxing Matters]

Ok, then what did we disagree about? I am confused.

I read your post as saying that a promissory note should NOT be involved. So where did that word not go?

 

[LdiJ]

I read your post as saying that a promissory note should NOT be involved. So where did that word not go?

 

[cprao]

What kind of security does the friend want? If I was the friend, I'd at least want to hold a mortgage on the property and charge at least enough interest to meet what the IRS would impute as interest income on the loan along with a promissory note. Just getting a promissory note doesn't provide the friend with any security from which to collect if you don't pay. In other words, a promissory note doesn't provide any collateral on its own. On the flip side, you probably don't want the friend to be a part owner of the property. Once you make him an owner, you invite the problem that he can make it difficult for you to get him off the title without a signficant payoff. Start by asking the friend what he or she wants. If you are ok with what the friend wants, then that resolves your issue, other than figuring out exactly the right way to do it, and for that you ought to see an attorney for help.

Thank you! Trying to find the same from the friend.

 

[cprao]

Don’t add him to the deed. What other way do you have to pay back the loan? Are you employed?

Yes, I am employed. what is your thought?

 

[zddoodah]

What are my options and how do I proceed to provide a collateral to the loan?

I don't entirely understand the question about options. As far as collateral, what do you intend to pledge?

Promissory note - if this is the option, should this be registered or notarized?

Registered? With...?? If I were the lender, I'd want the note to be notarized. From your perspective, it's a "who cares?"

Should I add him in the deed of the property? If yes, what is the procedure to do that kind of service?

"Him" being the lender? What does "add him to the deed" mean? If you're looking to pledge real property as collateral for a loan, putting the lender on title would be monumentally stupid. Is the lender asking you to do this? If so, I strongly suggest that you confer with a local attorney.