Quick Answer
Private money transactions require careful attention to loan and security documentation, accurate lender and borrower information, lien priority considerations, title insurance decisions, and compliance with applicable law.
Private money lending offers flexibility that conventional lending often cannot match, but it also requires careful documentation and title work to protect both the lender and the borrower.
Private Money Is Still Money
Whether the lender is a family member, a business partner, or a private lending group, the transaction needs the same attention to documentation as a conventional loan. The note and deed of trust or mortgage must be properly prepared, executed, notarized, and recorded. The title company needs to confirm the lender's identity and lien priority.
Do Not Let Friendship Replace Documentation
One of the most common issues in private money lending is incomplete documentation. Friends or family members may lend money without a formal note or security instrument, or with informal documentation that does not properly secure the loan. When the borrower later sells or refinances, the lack of proper documentation can create confusion about the lender's rights and lien position. For more on lien priority, see what is lien priority.
This article provides general educational information. Requirements may vary by jurisdiction and transaction. Consult qualified legal, tax, lending, or other professionals for advice on structuring private money loans.