Article

Structuring Hard Money Loans: Four Escalating Strategies to Minimize Your Risk

January 27, 2016

Banking & Restructuring Partner Bill Schwartz authored “Structuring Hard Money Loans: Four Escalating Strategies to Minimize Your Risk” published by The National Real Estate Investor.

As the economy has recovered from the downturn of 2008, private lenders are left to fill the substantial void in lending, where there are risks worth taking for the appropriate return. The question for such lenders, is how to structure a loan against real estate to become comfortable with the added risk that a bank would not take?

Let’s start with the most basic concept of hard money lending—there is simply a greater risk that the hard money loan will default, so it’s critical to make as much money as possible while the loan is still current, and to take as much collateral as you can in order to mitigate your risk.

A starting point: Obtain detailed PFS’s and request a pledge of all assets listed

Risk tactic #1: Get a guaranty with a confession of judgment clause

Risk tactic #2: Take a 100 percent pledge for the LLC that holds the real estate

Risk tactic #3: Consider an option agreement.

Risk tactic #4: Use pre-signed agreed orders

In all cases: Fully understand that hard money lending is risky

 

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