One of the most important documents you will ever sign with
a private lender is the actual Note that creates the loan
obligation. In a typical private lender transaction, you
the real estate investor (borrower) borrow money from a
private individual (private lender) and that transaction is
documented by a Note and Mortgage.
The Note lays out the terms and conditions under which the
private lender is willing to lend you money and under which
you are willing to borrow money. The Mortgage is the
security document for the borrower's performance under the
Note and usually is secured by a piece of real estate you
own or are about to purchase.
The Note is where you want to control the private lending
process in your favor and give you the borrower the control
and flexible you may need in the future. If the Note does
not have the right clauses contained within it, you are
potentially giving away tremendous control to your private
lender and tying your hands.
When dealing with private lenders it is critically
important that you remain in control of your future options.
If you were to go to your local Staples and buy one of
those template note forms you are potentially leaving your
future control over to your private lender without even
knowing what is happening.
We recommend the following two clauses in any Note with a
private lender.
Prepayment Penalty Clause: "The Borrower reserves the right
to prepay this Note (in whole or in part) prior to the due
date with no prepayment penalty"
The prepayment penalty clause allows you the borrower the
right to pay off a Note prior to maturity without a
prepayment penalty. Without this clause, you may not be
able to pay off a Note early or worse yet you may have to
pay a large penalty for the right to prepay the Note.
For example, if you have a three year Note secured by a
piece of real estate you own and you get a great offer to
sell the property. You see a big pay day in your future.
But without the above clause you may have to pay the lender
their full interest for the three years for the right to
pay off early or the lender may require a penalty of
several percentage points to allow you out of the Note.
With the prepayment penalty clause outlined above you have
the full right to pay the Note off early with no prepayment
or interest penalty. The benefits of this clause can be
very powerful and beneficial to you the borrower.
Substitution of Collateral Clause: "Borrower has the right
to substitute like collateral of equal or greater value".
The substitution of collateral clause allows you to sell
the underlying real estate without paying off the private
lender Note by substituting the collateral with a different
piece of real estate of equal or greater value.
With this clause you can flip a property without having to
pay off your private lender every time you sell a property.
Imagine the work and inconvience to you and your private
lender if every couple months you sell a property and have
to them off. Then a couple weeks later you call them to
reborrow the money and now you have to sign all new paper
work. This can be real burden on both of you and
eventually the private lender will tired of the process.
A much better solution is to use the above clause and every
time you want to flip a property you have the right to
transfer the Note to another property of equal or greater
value without paying off the private lender. The private
lender is much happier because his money is always working
without any inconvenience of new documents every couple
months.
Be sure to use these two clauses and months or years down
the road when you have a big payday coming by selling a
piece of real estate you will have the flexibility and
ability to realize that payday.
----------------------------------------------------
Mike Lautensack is a real estate entrepreneur and creator
of the Private Lender PowerPoint Presentation Kit. This
kit is loaded with tools and techniques to attract a
consistent stream of private investors. To learn more
about this powerful step-by-step kit go to
http://realestatewealthtoday.com/index.html
No comments:
Post a Comment