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Do I Need an LLC for a Hard Money Loan?

Posted by Walnut Street Finance Team on Jan 20, 2019

If you’re looking for a hard money loan to finance your next fix and flip project, you may want to consider establishing a limited liability company (LLC) first. Many hard money lenders require borrowers to have an LLC before they move forward with the loan for a few reasons...let’s take a look.

Hard money loans are another way to borrow using a private lender instead of a traditional bank. The property serves as the “hard” asset to back the loan.

Many real estate investors who are unable to get funded fully or quickly from a traditional bank turn to hard money because they offer the benefits of speed and flexibility.

In the wake of the 2009 mortgage crisis resulted in an expansion of the hard money lender market. This is due to newly stringent regulation around the mortgage qualification process arising from the Dodd-Frank, Truth in Lending (TILA) Act and Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act).

The vast majority of hard money lenders – including Walnut Street Finance – do not issue consumer loans to avoid the potential risk of falling afoul of the aforementioned Acts. Lending to owner-occupiers causes the loan to become a traditional mortgage, which brings with it a series of additional rules, regulations and requirements.

When applying for a hard money loan, borrowers typically need to sign affidavits stating that the property is for investment purposes only. This avoids exposing the lender to claims of violation of Dodd-Frank or the SAFE Act.

Fortunately, establishing an LLC is simple and affordable, and prospective borrowers can easily form one. 

Walnut Street Finance Team

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