Private investors and agreements/forms - Posted by MSchmidt (IL)

Posted by DavidV on October 11, 2001 at 22:49:49:

You might want to look up your states securities laws online. When you find them see if you can find a section that says “exemptions” or something to that effect. Some states have a list of things that are exempt under state law. For example, if you just give an investor a note it may be a security…but if you give a note AND a mortgage it may not. You might also ask your attorney about how using out of state investor money may affect you on a federal level if you plan on using out of state money.


Private investors and agreements/forms - Posted by MSchmidt (IL)

Posted by MSchmidt (IL) on October 11, 2001 at 16:37:45:

This is an area I have not spent a lot of time learning about, so excuse the simplicity of this question.

If you are going to buy a home using a private investor, exactly what forms/contracts/agreements do you need to do this transaction that will cover the investor and give him something that shows your deal/agreement? Is a simple promissory note sufficient? What if I only want to pay him interest only payments?

Example: I have a home I can pick up for $90K, FMV $120K, needs no work, has a tenant in place already. Now in comes the private investor that likes the idea of getting say 9% on his money.

Thanks in advance all and again, sorry for the basic question, I know I should know this by now and have probably read it 100 times but never sunk in.

Re: Private investors and agreements/forms - Posted by Todd (OH)

Posted by Todd (OH) on October 11, 2001 at 17:33:55:

The CORRECT and concise answer to this question is to contact a good Securities Attorney in YOUR state. Believe it or not, offering an interest rate to an investor and creating notes and mortgages on property falls under Securities law as well as real estate. The Securities Legislators say that you are “selling an interest rate”. Having given that disclaimer…

Ohio is a mortgage state, as opposed to a trust deed state, therefore I can only give a mortgage example.

You should give (and protect) your investor similar things to what your bank would get if they loaned you money to buy your own residence. At the very minimum…

  1. Promissory Note explaining the payment terms (the promissory note does not have to be recorded at the courthouse)

  2. Mortgage stating the amount loaned, legal description of the property, and when the final payoff is due. THIS MORTGAGE SHOULD BE RECORDED AT YOUR COUNTY COURTHOUSE IMMEDIATELY TO PROTECT YOUR INVESTOR!

  3. Property insurance naming your investor as the mortgagee

Hope this helps, and don’t forget to consult a Securities attorney before doing this. Just in case your state Division of Securities decides its time to go on a witch hunt…

Re: Private investors and agreements/forms - Posted by MSchmidt (IL)

Posted by MSchmidt (IL) on October 11, 2001 at 18:15:32:

Thanks for the info Todd. I am sure if I do this I will have my attorney involved, for sure on the first one anyway.

I did not know that Securities law was handled on a state level, always thought that was at the Federal level.

Thanks again for the info.