It took four months before anyone told me I was the gap
My cousin found a 1950s ranch that needed everything. His hard money lender covered 80 percent of purchase and most of the rehab budget, and he was about 38 thousand short on the down payment and the first draw. He asked me over pizza and I said yes in about the time it takes to say yes.
I wired the money. I got a one page letter he typed himself that said he'd pay me back in six months with 12 percent. I thought that was a loan document. I told a friend who does title work and she asked what position I was in, and I said the position of somebody who wired 38 thousand. She stopped chewing.
What I learned over the next few weeks, slowly and mostly by asking dumb questions, is that the hard money lender had a recorded first lien and I had a piece of paper in a drawer. If the house had gone sideways, the first lender gets paid out of the sale before anything comes to me. My cousin was not hiding this. He just didn't think about it either, because it never came up in his head as a thing to think about.
It worked out. House sold in month seven, I got my 38 back plus interest, and he bought me dinner. But the whole time I was reading about subordination and recorded liens and personal guarantees, and I kept thinking, I bought a lottery ticket and called it a bond.
I'd do it again. I'd do it differently.