Private Mortgage Lending. The Legal Ins and Outs and How To Best Protect Your Money.
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- Опубліковано 18 чер 2024
- Have you ever wanted to lend out your money on a private mortgage but you're concerned about the potential pitfalls? Are some opportunities better than others and what kind of due diligence should you be performing before you lend out your money?
Canadian real estate investor Darren Voros sits down with real estate lawyer Zahra Marani of Marani Law to talk about private mortgage lending. Zahra shares her experience on why she would never advise a client to loan out money on a promissory note, what kinds of loan-to-values and interest rates you might expect on a first and second mortgage, why it's important to underwrite your own deals and so much more.
To reach Zahra, send her an email at zahra@maranilaw.com or you can check out her website at www.maranilaw.com
****DISCLAIMER:
With any and all investing you should always obtain independent legal, taxation and financial advice from a licensed professional before investing any of your own money.
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Darren Voros
Darren’s diverse skillset has taken him to many stages around the world. He has been featured as an on-air renovation expert on “The Goods” (CBC) and “CityLine” (CityTV). Darren was also the behind the scenes contractor on “Save My Reno” (HGTV) and “Game of Homes (W Network).
Darren is an accomplished real estate investor, trainer and coach. He controls a portfolio of properties worth just over $10,000,000 and has travelled across North America educating, inspiring and motivating audiences on the subject of real estate investing, financial independence and financial literacy. Darren’s willingness to give back prompted him to launch his UA-cam channel in 2020 in order to have a wider reach in educating investors. - Фільми й анімація
This is super refreshing to have this type of content from a Canadian source! Very informative.
Glad you enjoyed it. Thanks for watching and commenting Chad.
This is a spectacular video Darren..I'm looking to get into private lending in Ontario(as passive as possible) as I don't have time to manage rental properties while running my business full time. You asked Zahra all pertinent questions any lender would need to know. Thanks for posting!
Thank you, Darren .You are a good interviewer. Thank you for sharing your knowledge and keep smiling.
Thank you Elizabete! Thanks for watching and commenting.
Very good information on private lending. Puts the rate of return into perspective.
Very helpful. Keep up the good quality info, great questions, no fluff, and all Canadian!
Glad it was helpful! As long as it's not too Canadian we're good haha.
Great information and my lawyer couldn't agree more but I do somewhat disagree when it comes to unsecured investments. It is not so "black and white". There are multiple terms and variables to consider in any agreement and even more so when lending money on a promissory note. If people implement "key" terms in a loan agreement/promissory note and carefully select their borrowers, a lender can still protect his/her investments and successfully reach his/her goals. Of course, our own risk tolerance plays an important role, and also, it all depends on our views/beliefs and material attachments.
I love this excerpt by "Evelyn" a character in the movie "The Best Exotic Marigold Hotel", it encompasses a subtle truth that applies in every aspect of our life, if we desire to live a fulfilled life.
"The only real failure is the failure to try and, the measure of our success is how we cope with disappointment.
The person who risks nothing does nothing, has nothing. All we know about the future is that all will be different. Perhaps, what we fear, is that it will be the same, so we must celebrate the changes. Everything will be all right in the end and, if it is not all right, then trust me, it is not yet the end."
That was very useful information. We appreciated the reminder about really doing your own due diligence and the detail about the risks of promissory notes and what happens when a first mortgage is in default and your in the second position.
Yes definitely a great reminder. That's essentially the only work you need to do as a lender so to skip this step or not investigate thoroughly, you're asking for potential trouble. Thanks for watching and commenting.
Good feedback and refresh of course
. Knowing the other person important before landing.
Glad you enjoyed the video Daniele!
Hi Darren, Very helpful video. Thanks
Glad it was helpful! Thank you for the feedback Gurdip.
I'm glad to watch this video, very clear info regarding private lender, looking to get into this business.
Glad it was helpful! Thanks for watching and commenting.
Thank you very much!
Great video...I would never lend my capital without full title insurance and being in 1st trust deed.
Great content!
Appreciate the thanks Ian!
Great info. Ty
Glad you enjoyed it.
Thank you thank you
Well explained Zara.
Glad you enjoyed the video Roy!
My Quebec mortgage broker and notary both say NEVER lend without security! Fair enough, especially for large loans. But let's face it, promissory notes make the real estate world go 'round. Especially for short-term needs like flips and bridge loans where we're talking about $30 to 75k for short-term, a couple of months max. I'm a lender but I understand that sometimes mortgage fees and paperwork just aren't worth it for the borrower. Great relationships and trust go a long way in this business.
Great points Anne. Ultimately it's really up to the lender and how they want to handle their business. If you have a relationship and trust with a borrower, it's definitely easier to work on P-Notes. It all goes back to risk versus reward.
Interesting. For my PML, all my promissory notes have collateral assigned. Is this a Canadian difference?
You can assign collateral to a promissory note here too but to collect on that if things go south involves a lawsuit. To collect on a mortgage note, is so much less complicated and costly.
What happens if the borrower defaults on the 2nd mortgage. Can he force the sale of the property?
Lawyers are allowed to refer clients to other lawyers they have relations with to do deals?
I'm want to be a angel investor, for multifamily complexes for class c properties should we form a LLC . I don't know what the risks are?
Interesting information. So if there's a 1st & 2nd position mortgage on a property and the borrower defaults, the 1st position lender could just sell the property at a low enough price to recoup their money only?
For example, $800k home has $400k 1st mortgage and $200k 2nd mortgage. Person defaults, so 1st lender decides to sell home for only $400k to recoup their losses (even if it's selling the home to them self or someone they know, to flip after). This causes 2nd lender to get nothing and the purchaser of the foreclosed home to potentially earn a high return on home purchase.
Great questions. That is definitely a possibility and that's why Zahra said if you're in second position you have the option to pay out the 1st mortgage or keep it in good standing (keep making the payments). There is a law in Canada that says the power of sale home has to be sold for the "fair market value" so the 1st mortgager can't sell the property for $400k if its value is $800k. They have to sell for as close to $800k as they can get, pay out all of their costs and if there's money left over that goes to the 2nd and if there's STILL money left over, that goes back to the person that defaulted. I know crazy right?
@@DarrenVoros What about 3rd? I've never loaned on that position, but I know it exists.
I'm interested in talking to Zahra for handling my private money lending deals. I'm in the USA. If she can't, can she recommend someone in whom I could trust? Thank you.
Great video, thank you both. How can I reach out to either of you for advice?
Thank you. Check out my website darrenvoros.com to get in touch.
This is awesome! Why is it more risky again to be 2nd mortgage?
Because in the event of power of sale you get paid from what is left after the 1st position lender. 1st position is going to get what they're owed, plus additional interest, fees, and legal costs. Depending on the loan to value, that may not leave enough to pay you out in full.
It is risky because:
A person buys a home for 1 million
1st Mortgage: 80% so 800K
2nd Mortgage: 10% so 100K
Downpayment of 100K
now imagine if the housing market goes down and the house is worth 800K and the person defaults so now when the first mortgage provider sells the house, he gets his 800K back but the second mortgage funds are completely washed out
Hello lenders, investor here looking for a 1 position loan for 1 year looking for 30,000. Value if my property is 100,000.