Private Loans in Property Transactions
Private lenders tend to be sophisticated, and they usually design their own lending criteria. Often, their rates are high. Some people find private lenders through referrals or a directory service. It is usually a good idea to look into who services the private loans and how many foreclosures they have conducted over the past several years. Most of the time, it is wise to avoid agreeing to a private loan with a lender with high foreclosure rates. If you are considering a private loan in a property transaction, it is wise to consult the Boston real estate lawyers at Pulgini & Norton for guidance on your options.The Process of Securing a Private Loan
As with bank loans, you will likely need to complete a loan application and provide information on a Statement of Information or similar document about your financial situation or standing. The private lender may require you to provide additional documents, including such items as tax returns, bank statements, financial statements, leases, and valuation information on other properties owned.
How much you can receive in a private loan and its terms will depend on the information you provide about yourself. Generally, those who present themselves as organized and competent stand a better chance of getting good terms in a private loan. In general, you should be aware that the maximum allowed interest rate is 20%. Anything over that, except when the lender is regulated by a regulatory agency or another Massachusetts law, is considered criminally usorious. However, lenders can charge more than 20% in interest if they file a notice with the Attorney General before disbursing loan proceeds and keep records.
A private lender processes the loan after documents are submitted and a particular type of loan is approved. You will likely need to give access to a licensed appraiser, although in some cases, a real estate broker will provide an opinion about the value. A title company will research the property to determine whether there are any liens or judgments on it. Before the loan is funded, any unresolved liens or judgments would need to be cleared. Otherwise, the title insurance company may not offer coverage. It is important to secure the appropriate release so that the lien does not continue to show after you have paid it off.
The private lender will let you know its decision after reviewing the property appraisal and title. If it agrees to provide a loan, it will send documents to be signed. Closing is often overseen by an escrow company at its office, or it may occur in the lender's office. The escrow company will receive funds from the lender, record applicable deeds, mortgages, and trust deeds, and disburse funds after the appropriate documents are recorded.
Once funds are disbursed, a loan servicing company (or the lender, if it is servicing its own loan) will add the loan to its system to accept payments and send you statements. In many cases, interest is prepaid for 30 days to allow the loan servicer time to add the loan. In general, it is important not to simply wait for the first statement, but to send the money to the servicer as directed.Consult an Experienced Real Estate Lawyer in Boston
If you are considering a private loan in connection with a home purchase, the Boston real estate attorneys at Pulgini & Norton can assist you. We advise and represent people in Cambridge, Medford, Weymouth, and other cities in Massachusetts. Call us at 781-843-2200 or contact us via our online form to set up a free consultation.