Hard money lenders provide borrowers with loans that are backed by some form of real estate. Here, the borrower may put up their property interest in a home or commercial property as collateral for the loan. These loans are often called “bridge loans.”
What Are Some Characteristics of Hard Money Lender Transactions?
Loans obtained from a hard money lender often have the following characteristics:
- They may be easier to obtain, as the hard money lender often does not follow traditional credit check and loan approval guidelines.
- The loan may be subject to higher interest rates, since borrower approval is somewhat “loose”, and there is often the risk of borrower default. To counteract this, hard money lenders often lend at higher interest rates.
- The loan term is typically shorter than a traditional loan, often less than 10 years. This means higher monthly payments in some cases.
While hard money lenders may not always require an exhaustive check for approval, they are required by law to verify “ability to repay.” That is, they will usually be required to verify income documentation from the borrower.
What Are Some Legal Issues Associated with Hard Money Lenders?
Hard money lending can often be associated with specific legal issues. These include:
- Licensing: Hard money lenders need to obtain the proper licenses and certification in order to lend the money. For instance, they will need special licensing if the property to be used as collateral is residential property. Without proper licensing, the loan will not be considered valid.
- Fraud: Some hard money loans may be subject to various loan fraud and misrepresentation issues on both the lender and the borrower’s side.
- Pre-paid interest: Lenders generally cannot require more than two months of pre-paid interest for loans backed by residential property. This may be different for loans backed by commercial property.
Legal disputes over a hard money lending contract can often require a lawsuit. These may be remedied through a damages award that will help the non-breaching party be compensated for losses. In some serious cases, criminal charges may sometimes be involved, especially for cases involving fraud, deception of a government official, or other criminal issues.
Should I Hire a Lawyer for Help with Hard Money Lender Issues?
Hard money loans can often help a person obtain funds in a short amount of time, with less verification requirements. However, they are also associated with certain risks and penalties. You may need to hire a qualified credit attorney if you need help with a hard money loan. Your lawyer can help you research your financing options, and can also represent you if you need to file a lawsuit with the court.