HICKSVILLE, N.Y.— Private lenders are non-institutional lenders that issue short-term loans for the purchase of a property. The loan can be used to purchase a house, condo, a multi-family residence or commercial property. There are three degrees of private lenders: primary circle (family and friends), secondary circle (colleagues, professional, and personal) and third-party circle (investors and hard money lenders). Long Island residential real estate attorney, Markotsis & Lieberman, P.C., explain the rights of private lenders below:
Once a borrower has secured a private lender, things will progress similar to how a traditional mortgage goes. Also referred to as a mortgage note, a promissory note will be a legally binding document signed by the borrower promising to repay the loan under the agreed-upon terms. Terms generally include interest rate, payment dates, and frequency of payment. The note can also describe any penalties the lender can impose if you fall behind on payments, including requiring full payment of the amount borrowed prior to the end of the loan term.
There will also be a mortgage or “deed of trust” (depending on the state) which is a legal document that provides collateral for the promissory note. It gives the lender the legal right to foreclose on your property and use the proceeds to pay off the loan if you fail to do so. The mortgage lists the currently recognized owner and legal property description and describes the borrower’s obligation to pay principal, interest, taxes and insurance in a timely manner, maintain hazard insurance on the property and maintain the property itself. If the borrower doesn’t comply, the private lendercan demand immediate, full payment of the loan balance.
Generally, a private lender’s requirements for giving a loan are not as stringent as that of an institutional lender and its associated costs are usually less. However, the interest rate on the loan, as well as the points to obtain the loan, are usually higher
While there are both pros and cons to using a private lender for your real estate endeavor, it’s important to know the rights that a private lender has. Understanding these rights protect both the lender and the borrower. These situations can become complex, so it’s helpful when you have an attorney by your side to help you understand and advise you throughout the process.
About Markotsis & Lieberman, Esq.: Markotsis & Lieberman, P.C. is a general practice law firm. Practice areas include real estate, litigation (commercial and civil), business formations, agreements and transactions, and wills, trusts and estates. Our team of seasoned attorneys is here to guide you through every step of the legal process providing personalized attention to every client. When you’re facing a complicated legal situation, our team of legal experts is there to fight for your rights.