Lending against an assignment fee, and the security won't work
An operator I've lent to twice on rehabs asked for something different. He wants $18,000 for 30 days to cover earnest money and a small non-refundable extension on a contract he's holding, and he'd repay out of the assignment fee at closing. He says his fee is contracted at $27,500 with an end buyer who has already signed.
What I have. Copies of both agreements, the purchase contract with the seller and the signed assignment to the end buyer, with the fee stated in both. Proof of the end buyer's funds, a screenshot of a bank statement, which I don't love. A title company already holding the file. His track record with me is two loans, both repaid on time, both secured by real property.
What's bothering me is that there's no real property to secure this. He never takes title. What I'd be lending against is equitable interest in a contract, which is an assignable right that evaporates if the seller cancels, if the contract terms fail, or if the end buyer walks. Recording a memorandum of the contract is one option and it varies by state whether that's even accepted for recording, and doing it can cloud title in a way that makes everyone at the closing table unhappy with me.
My alternatives as I see them. Secure it with a UCC filing against his entity, which is worth roughly what his entity is worth, so not much. Or take a personal guarantee and price it as unsecured, which at 30 days and $18,000 means a fee big enough that he'll probably say no.
What I keep coming back to: if the end buyer is real and funded, why isn't the end buyer funding the earnest money directly? That question is doing more work in my head than the collateral analysis is. I haven't asked him yet.