Quick Answer
Hard money transactions often involve compressed timelines, lender-specific title requirements, entity borrowers, and lien priority concerns. Providing lender information early and understanding the title implications helps the transaction close on schedule.
Hard money lending is a common financing method for investor transactions. The speed of hard money closings and the unique documentation requirements create specific title considerations.
Title Needs to Know
- Lender identity: Full legal name of the hard money lender. If the lender is an entity, provide entity documents.
- Loan terms: Loan amount, interest rate, and any special provisions that affect the title policy.
- Security instrument: The lender will typically require a deed of trust or mortgage as security. The title company needs to prepare this document and ensure it is properly recorded.
- Title insurance requirements: The lender will likely require a lender's title insurance policy. Confirm what policy amount and endorsements the lender expects.
- Funding timeline: Hard money closings often happen quickly. The title company needs to know the funding deadline.
Lien Priority Matters
In a hard money transaction, the lender's lien position is critical. If there are existing liens on the property, the hard money lender needs to understand where its lien will fall in priority. Some hard money lenders require a first lien position. Others will accept a junior position if the combined loan-to-value is acceptable. For a full discussion, see what is lien priority.
Consider a hypothetical scenario: An investor is purchasing a property with a hard money loan. The title search reveals an existing mortgage from the seller's previous purchase, a tax lien, and a judgment against a former owner. The hard money lender requires a first lien position. The title company must coordinate the payoff of the existing mortgage and the resolution of the tax lien and judgment to ensure the hard money lender's lien is in the first position.