A private loan without a recorded lien is not secured by the property, whatever the conversation implied
Worth studying as a cautionary case, because the mistake is common among first-time private lenders. Say someone known casually, with two completed flips and a reasonable reputation, is short on rehab money for a third property and asks for 40,000 for four months, offering 12 percent plus a flat fee at payoff. On that scale, the return looks attractive for what feels like a short, simple loan. A promissory note gets signed using a template, both parties sign, and the funds get wired. No title company, no attorney, no deed of trust or mortgage recorded at the county. The note by itself does not attach to the house; a house discussed in conversation as the implicit security is not the same as a recorded lien against it. The risk this creates becomes visible only when something goes wrong. If there is already a larger hard money first lien recorded on the property, often with a clause requiring the lender's consent before any additional debt, an unrecorded private loan sits behind that first lien with no priority at all, and default interest and fees on the first can consume essentially all the equity in the house before an unsecured lender sees anything. When the project stalls, whether from permits, a foundation issue, or the borrower running out of money, an unsecured lender has a note but no claim on the property, and repayment becomes a matter of the borrower's goodwill and cash flow from other jobs, potentially over many months and often for less than the full amount plus interest. The fix, plainly: run a title search before wiring any private loan, which costs a modest fee and reveals existing liens and consent clauses. Record a lien, whether a mortgage or a deed of trust depending on the state, using a local attorney rather than a template. Get the lien position in writing. And treat the borrower's stated use of funds as a question rather than an assumption, especially when a large loan is already in place ahead of the new money.
