Full question:
If I am buying property using a private money investor to purchase it, is a recorded promissory note using the property as security a common and proper way to structure the deal or should I use another method such as a deed of some sort? I'm looking for the easiest and least confusing way to get my private investors to feel secure without going overboard.
- Category: Real Property
- Subcategory: Deeds
- Date:
- State: California
Answer:
A promissory note can be secured or unsecured. A secured note means the lender can take the property (collateral) if the borrower fails to make payments. In case of bankruptcy, the lender may recover their loan value through the collateral rather than just a portion of the borrower's assets.
Promissory notes can require payments in installments or a lump sum, and they may include a balloon payment at the end. Some notes may also have a confessed judgment agreement, which allows a judgment to be entered against the borrower if they default.
Alternatively, a contract for deed (or land contract) can be used. In this case, the buyer doesn't receive the actual deed until all payments are made, meaning ownership isn't fully transferred until then. If the buyer defaults, the property can be foreclosed on.
It's important to note that if there is an existing mortgage, using a contract for deed might violate a due-on-sale clause, which allows the lender to demand full payment if the property is sold or transferred without their consent.
There are various ways to structure real estate transactions, and the best method depends on specific circumstances, such as existing liens and who is named on the deed. For tailored legal advice, consider consulting a local attorney who can review your situation.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.