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lending money to developer

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DavidDam

New Member
I am looking to sell a property I own ( to be more specific currently owned by an estate that I will inherit from) to a developer, he wants to pay me half the value of the property now and half in 12 mths time we are both happy with this arrangement, how would this transaction be formatted with both parties protected. Any advice would be greatly appreciated.
 
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Brian Dellinger

New Member
I'm going to use US law terms, but I believe the same theory would apply for practical purposes. Developer pays you half of the price at closing, and signs a promissory note for the other half, due and payable in one year's time. The note would be secured by what we'd call a deed of trust/mortgage/security deed that appears of record in the public registry.
 
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Longterminvestor

Administrator
Agreed - in effect you will have a claim over the property in the event that the developer does not pay the second payment in 12 months. Because of the deed of security the developer would not be able to sell or raise funds against the property without your permission.
 
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nmb

Well-Known Member
It is vital that the relevant restrictions are put in place until full payment has been received. Do you know why they have structured the payments this way? Are you charging interest on the second payment as you could be "out of the money" for a while.
 
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Brian Dellinger

New Member
Go and see a solicitor, who can very safely structure this for you. This is the kind of transaction that if you just do a home-made agreement, you may not adequately protect for worst case scenarios.
 
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Paolo Agostinelli

New Member
I'm going to use US law terms, but I believe the same theory would apply for practical purposes. Developer pays you half of the price at closing, and signs a promissory note for the other half, due and payable in one year's time. The note would be secured by what we'd call a deed of trust/mortgage/security deed that appears of record in the public registry.
Agree with Brian.....Also, assuming that you sell the property at a value that is 100% or more of it's market value, the property (which would be the collateral in this deal-Brian's comment above about being secured by the appropriate deed of your locale (I'm in the US, as well)) is worth twice the original loan amount (Since you are loaning 50% of the value of the property) So, there is value there and you're loan is safe in that respect. Always make sure that any loan you extend can be comfortably secured by the value of the collateral, which should be much greater than your loan amount, depending on your level of risk.

Make sure you are engaging an attorney or similar who is capable of writing these docs, your note is secured against the property, and that the appropriate documents are recorded. Also, you'll most likely want to make sure that your note is in the 1st lien position, because if there are issues with successfully completing the development and you need to recoup your investment, your debt will be paid first.
 
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FWL

Active Member
In the US, would you need to pay back the initial payment if the investor reneged on the second part payment?
 
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Paolo Agostinelli

New Member
In the US, would you need to pay back the initial payment if the investor reneged on the second part payment?
In the above example, the seller of the property would not need to pay back the original 50%. If the developer or buyer defaulted on the remaining 50% of the purchase price, the original seller would keep any amounts/payments already received and can then take back (contingencies can be structured many different ways upfront between buyer and seller) the underlying collateral (i.e.) the land that the loan was secured against.
 
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