State is Texas.
I have a friend who is willing to loan me money to buy property. What I need to know so I can educate him is what forms need to be filled out and filed at the court house for him to have a lien on the house for the loan amount while title to property is still in my name.
Originally he wanted title in his name. I am trying to convince him that he can be happy with a lien which prevents me from selling without him being paid first.
I just dont know the paper work needed to make this happen. Can any one help?
Structure the security aspects of the transaction the same way you would structure it with a mortgage company.
Step 1: Obtain a title search or title commitment on the house to make sure you know the existing ownership of the house, and whether there are existing loans or liens that need to be paid off by the seller when you close on the purchase of the house.
Step 2: Assuming the Seller can convey clear title, the Seller will execute a general warranty deed or special warranty deed to you - the deed transfers ownership of the house to you. Record the deed in the County deed records.
Step 3: Execute a real estate lien note (real estate promissory note), payable to your private lender, for the full amount of the loan.
Step 4: Execute a Deed of Trust (Mortgage) to a Trustee for the benefit of your private lender. The Deed of Trust is your private lender’s security for repayment of the note. If the transaction is structured properly, your private lender will have a first lien on the house - if you default on the note, he can foreclose.
Step 5: You may also want to offer to give your private lender a deed in lieu of foreclosure, so that in the event you default on the note, it might not be necessary for him to go through a full foreclosure.