What is a Hard Money Loan Agreement Review?
A hard money loan agreement is a legally-binding contract between a lender and a borrower. It enables the borrower to have access to funds that have been secured by property or high-value assets, for a short-term lending arrangement.
Once a hard money loan agreement has been drafted, you should review it so that all its terms are specific and fair to both parties. This will also ensure that you understand all the terms to prevent challenges in the future.
Read the rest of this article to explore key terms that are usually included in a hard money loan agreement, how to review it for accuracy, and when to consult with a qualified lawyer for help with reviewing your contract.
What are Common Terms to Include in a Hard Money Loan Agreement?
When reviewing a hard money loan agreement, some common terms you’ll find in it include the following:
- Interest rate. It’s common for hard money loan interest rates to be high. Calculate them to ensure all figures are correct.
- Property value. Since the asset value is crucial in a hard money loan agreement, it must be clearly and accurately stated.
- Closing costs. Check that these costs are included so that there’s no confusion.
- Fees. Additional costs must also be outlined, such as origination fees.
- Maturity date. Hard money loan agreements have a short-term duration. Check if there are available extensions.
- Use of funds. The agreement should be clear about how the funds will be used by the borrower and what usage restrictions apply.
- Insurance and indemnification. Insurance coverage must be detailed and indemnification provisions included that explain if the borrower could be responsible for any claims.
What are Tips for Reviewing a Hard Money Loan Agreement?
Now that you’ve checked some of the most essential terms in a hard money loan agreement, it’s important to consider other elements of the contract so there’s nothing vague or ambiguous in it that could result in disputes.
Explain Penalties
The hard money loan agreement should explain how penalties will apply for late or missed payments. This can include fees or higher interest charges. Check that the agreement also outlines what happens if there is early repayment.
Verify Borrower Duties
The borrower in the loan agreement will have to agree to fulfill certain responsibilities, such as maintaining the property or getting insurance coverage.
Confirm Collateral Provisions
Collateral is a big part of the hard money loan agreement, so you want to verify all its details. Check what’s said about the lender being permitted to take the property if there is a payment default and if additional collateral is allowed.
Consider Fund Usage
How the borrower will use the proceeds must be clearly stated so that there’s no risk of misinterpretation. It’s common for these proceeds to be restricted, such as by assigning them to property acquisition, renovation, or other activities.
As a borrower, it’s essential to check the agreement if using the funds for other reasons counts as a default.
Analyze Lender Remedies
If there is a default, the hard money loan agreement should detail what the lender is allowed to do. This can include accelerating the loan, foreclosing the property, or charging default interest.
Should You Hire a Lawyer to Review a Hard Money Loan Agreement?
Since a hard money loan agreement that isn’t properly reviewed can pose significant risks, it’s worth consulting a qualified lawyer to provide an in-depth legal review of it.
Here are some things a lawyer will do during the contract-review process to assist you:
- They’ll understand the entire agreement to verify how much money is being borrowed, what assets secure the loan, how funds are provided, and how the loan will be repaid.
- They’ll consider all additional charges and costs, and ensure these are explicitly stated in the agreement.
- They’ll flag the contract for ambiguous language to protect your interests and avoid hidden risks.
- They’ll scrutinize all default terms and remedies, ensuring that these are aligned with what was agreed on previously and that they’re reasonable.
- They’ll check all representations and warranties, preventing broad statements that could make compliance challenging.
- They’ll negotiate any unfavorable terms in the agreement with the other party, should this be required.
- They’ll explain all terms, helping you to understand anything legal and technical before you agree to the contract.
Where Can You Find a Lawyer to Review Your Hard Money Loan Agreement?
If you’ve decided to hire a lawyer to review your hard money loan agreement, you don’t have to call traditional law firms in your area. Use an online legal platform that makes it easier to connect with reputable lawyers who have the expertise to assist you by providing an in-depth review of your contract.
ContractsCounsel is one of the largest online legal platforms that connects you to a curated network of lawyers who have been vetted. You’ll hire an experienced and reputable lawyer who will review your contract, make required revisions, and ensure all terms are legally sound.
If you want to hire a lawyer on the platform to review your hard money loan agreement, here are the steps to follow:
- Go to the ContractsCounsel marketplace.
- Post your request, or project, for free.
- Include a few details to match with a suitable lawyer.
- Wait to receive bids from lawyers on the platform who are ready to help you.
- Review lawyer information provided on the platform, such as the lawyers’ location, expertise, credentials, and client ratings for projects they’ve completed on the platform.
- Select a lawyer to work with and hire them to review your hard money loan agreement for a flat fee.
