Posted by JackM on July 15, 2005 at 22:15:14:
Mr Behle mentioned in an article ("Discounted Paper VS Hard Money Loans")that when making a hard money loan one has certain requirements to adhere to.
For example, the APR - Annual Percentage Rate must be disclosed on a loan that includes points and other loan costs. It can be a violation of federal law not to do so. Violation of these laws could lead to a total loss of interest and principle on a loan, lawsuits or judicial problems.
However, if, after one has purchased the paper from the previous lender, the borrower starts a court case relating to breaches of certain requirements of disclosure where does this place the buyer of the note ?
Whilst it makes sense that most laws do not apply to a secondary buyer as he wasn't around when the conditions were breached it seems to me nevertheless that the paper itself may well be at risk in which case the secondary buyer couldn't redeem his money nor the interest (at least not from the borrower).
In order to protect oneself (as best as possible that is) I would imagine that it would be prudent to have the vendor of the note sign an agreement that in such a situation he would be responsible to make good.
Any comments ?
Regards,
JackM