Is it illegal for a real estate agent to give his client a hard money loan?

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Is it against the real estate law for an agent to give his client money for personal needs (to make the mortgage payment), and have the client name the agent as the beneficiary on the deed of trust to the house as collateral for the cash loan?
I’m sorry, I forgot to mention that I already own my home, I refinanced it to make repairs and have an agent who has listed it for sale. The agent helped me get the loan for the re-fi. The hard money loan came afterwards when the mortgage payments became more than i could afford so the agent offered to loan me money for survival until the house sold.

8 Comments
  1. Reply
    alakaybee
    February 13, 2011 at 3:36 pm

    Depending on where you live, the legality may or may not come into play. The bigger issue is one of — is this a good idea? If you cannot make your first mortgage payment, in all likelihood, you should not be buying the house anyway. Some would question the ethics of an agent who would agree to this plan. Your agent should work in your best interest, and it sounds to me like using this scheme to buy is not in anyone’s best interest!
    Agent in Ohio

  2. Reply
    pwi2366
    February 13, 2011 at 3:48 pm

    I only know California real estate law, so my answer is based on that only. Yes, it is legal. Yes it is ethical (barely). However, I would re-evaluate who you are using as an agent.

  3. Reply
    mysticgraystar
    February 13, 2011 at 4:18 pm

    If you have any doubts (which it sounds like you do) you should first, consult an attorney; second, call the Real Estate commission of your state and question them. They have strict guidelines that brokers and agents must adhere to or their license may be suspended/revoked.

    When I purchased my first home, my agent lent me money to pay off a bad debt so I could qualify for my mortgage. I signed a promissory note and made my monthly payments.

    I am real estate broker, these days, and would NEVER think of loaning any of my clients money when they are in over their heads, let alone asking them to put my name as the beneficiary of the deed of trust (he/she can foreclose on you without going to court). This sounds ‘fishy’ to me.

    Like I said, consult an attorney IMMEDIATELY.

  4. Reply
    John
    February 13, 2011 at 5:18 pm

    Based on how you described the situation there is nothing illegal.

    You refinanced the property. Later (after the refinance) you ran out of money and secured another loan that is junior to the 1st. That loan is from an agent. The purpose of the loan was to give you the cash to keep up with the payments.

    Why would you think this is illegal? What laws are you thinking have been broken?

    I suspect there is more to the story. Given what you said there is nothing illegal at this point.

    You sound like you have an alligator property and it is eating you alive. You need to get it sold or find a way to generate more income.

  5. Reply
    novastarbanker
    February 13, 2011 at 5:46 pm

    It isn’t illegal, and you signed your name to the terms. I am not quite sure why when you couldn’t afford the payments on the first you thought it would be a good idea to take on another monthly liability/payment. The terms of the hard money loans usually come with a high interest rate and a short time frame to pay the money back in full. You would have been better off doing a regular refinance, and maybe consolitating some of your other monthly debt to offset the new payment, and if you have any equity left in the property it is something you should consider, as that balloon payment is looming if not upon you yet. Your agent will own some of your home if you don’t pay that money back. If you need help you can email me at thenderson@acgmoney, and maybe I can find a way to help you. Good Luck.

  6. Reply
    besthusbandever
    February 13, 2011 at 6:21 pm

    a hard money lender is for people that have poor credit and can not get a good loan from a regular lender…….they charge you a very high interest rate, maybe 12% compared to a regular mortgage rate of maybe 7%

    if you have good credit and not to much debt you should qualify for a regular loan, if you live in PA and you want to buy something in this state send me an email and I can help you.

    • Reply
      sandeep
      May 23, 2011 at 3:20 am

      i want to buy a home at diva, but its illegal property. bank not give me a loan for this property. pls. suggest me how can i get the loan for such property. pls. guide me

  7. Reply
    ochomeaga
    February 13, 2011 at 6:56 pm

    people without good credit may be offered hard loans whereas people with great credit will recieve the “soft loan” 🙂

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