How to put a lien on the property that I borrowed 80% to buy for my friend?

Asked by Alice, San Jose, CA Tue Aug 7, 2012

I am a private lender on the title for a friend's property. The loan was 80% of $450K. If my friend default the monthly payment, what I can do to protect myself? Can I evict him/her? Can I put a lien on the property and how? Please advise. Thanks

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Guy Berry, Agent, San Jose, CA
Tue Aug 7, 2012
If the person who you loaned the money agrees, you do not need a lawyer. Simply go to the title company who handled the purchase and they can handle it. You also have to draft a note showing what the terms of the loan are. They should include

1. amount owed
2. interest rate
3. Note due date
4. Payment plan
5. Late charge on monthly payments
6. Late charge if note not paid on time
7. Notice of Delinquency - This will notify you if the borrow is late on their senior notes
8. Due on sale clause
9. Borrower to keep insurance on property and provide you evidence
10. I would also put in the note that the property to be owner occupied so that the owner doesn't rent to someone else
11. If you need an attorney, recommend Roger Wintle 408-925-0146

Guy Berry
Keller Williams Realty
2 votes
Grace Hanamo…, Agent, Cupertino, CA
Tue Aug 7, 2012
Hi Alice:

Before you do anything, as the others have mentioned, it's a good idea to contact and hire an attorney. This is especially important since:

1) You and your friend do not appear to have initially agreed to set up the loan in this manner (it may have been a more casual arrangement) and

2) Filing a lien on the home can cause the first or primary lien holder to call the loan on the property, causing your friend to lose the home.

3) Filing liens and "perfecting" a security must follow the rules of the Uniform Commerical Code in the State of California, so while you CAN do this yourself, since we are talking about several hundred thousand dollars and the title company will not advise you on how this is done, it's best to do this properly with the help of an attorney.

Good luck!!

Grace Morioka
Area Pro Realty-People's Choice
2 votes
Mitchell Pea…, Agent, San Jose, CA
Tue Aug 7, 2012

As Terri Vellios saide, you need to have a promissory note memorializing the terms of the loan and deed of trust naming you as beneficiary drawn up by either an attorney or a title company. Then record both with the county clerk recorder. This assumes that the property on which the loan was made is in California.

The promissory note is the instrument that spells out the terms of the loan. It includes the amount, length of the loan, whether it is fully amortizing, what late payment fees are, the interest rate, and the payments. The deed of trust is the is the instrument that "secures" the loan. It is through a deed of trust that you can get the property back using a non-judicial foreclosure process. Through that process, you would evict your friend for non-payment.

You really need to sit down with a real estate attorney who can explain all this in detail. You now have rights and responsibilities you must understand in order to protect yourself and maintain your relationship with your friend, which must be pretty special if you loaned that much money to her or him.

Please be sure you do the above so no one can later claim your loan was a gift. If you do not get everything down in writing, you may find yourself in a situation where the courts will not help you get your money or the home back if your friend ends up not paying. Generally speaking loans of this nature must be in a written contract or they "violate the statute of frauds" in which case the courts won't get involved to protect your interests. Written contracts also help keep the contracting memories from failing.

You must be a very good friend and generous person to have made the loan, now be a good business person and maintain a good friendship by going to an attorney to get a full understanding of the above and the documents recorded with the county recorder.

Mitchell Pearce
2 votes
Terri Vellios, Agent, Campbell, CA
Tue Aug 7, 2012
This will depend on how your documents were drawn up for the loan. Did you have a promissory note, and deed of trust? What are the terms in those documents? It is best to review this with an attorney.

All the best to you.
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2 votes
Elena Talis, Broker, Palo Alto, CA
Tue Aug 7, 2012
Alice, the loan itself should have been recorded as a lien on the property, if it was properly done in the first place. If your friend defaults, you should be able to foreclose and get the house. Then you should be able to evict/rent/resell it or do nothing... It will be YOUR house then.
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1 vote
Andrea Wince…, Agent, Milpitas, CA
Tue Aug 7, 2012
Hello Alice, your question prompts more questions than answers. I recommend you seek consultation with a real estate attorney.
1 vote
James Gordon…, Agent, Hamilton, OH
Tue Aug 7, 2012
You need to contact an attorney. There are two things you should have in my opinion which is not legal advice. The first is a note to spell out the repayment terms. The second is a mortgage which binds the note to the property and establishes the lien.
1 vote
John Juarez, Agent, Fremont, CA
Tue Aug 7, 2012
I think that you should sit down with a real estate attorney, share whatever paperwork you have with the attorney and get advice that you should have gotten before you lent money to a friend’s girlfriend.
0 votes
Yvonne Han, Agent, Carmel, CA
Tue Aug 7, 2012

My advice to you is go to a Title Company and they will recommend an attorney if you don't have one.

Good luck,
Yvonne Han
Sotheby's Realty International
Dre # 00811389
0 votes
Lang Lequang, Agent, San Jose, CA
Tue Aug 7, 2012
Usually lawyers put a lien on a property, please contact a lawyer.
0 votes
Jim Guido, Agent, Santa Clara, CA
Tue Aug 7, 2012
Hi Alice,

The questions you posted can have many answers depending on several factors. You have received some very good answers and in my opinion you really need the advice of a real estate attorney.

Jim Guido,

Realty World/Blue Property Group
Cell: 408-472-2074
DRE# 00700635
0 votes
charles butt…, Agent, san jose, CA
Tue Aug 7, 2012
Thank you for your question Alice:

These ae legal issues. I recommend that you contact an Attorney who has a great deal of experience with Real Estate transactions.
0 votes
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