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An friend acquaintance of mine is willing to lend me $10,000 at 15% if I will put her on Title to my property as collateral. I will pay nothing back until I sell my property. What are the risks in doing this?

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    BTW: the terms are quite draconian... Secured loan with 15% rate? With such a friend who needs enemies... – littleadv Sep 16 '13 at 21:50
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    Agreed. Glad I have no friends like this. – JoeTaxpayer Sep 16 '13 at 22:03
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    Is this a straight-forward 15%, no matter how long you hold the property? If so, it's criminal usury if you sell quickly, great deal if you hold property for 25 years. 15% per year? An enemy, not a friend. – ChrisInEdmonton Sep 16 '13 at 22:16
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No, it would not be wise at all. Name on the title means ownership. Once its there - only she can remove it.

Instead, you give your friend a deed of trust, which is conditioned by the terms of the loan. This way your friend (now lender) can foreclose on the property if you default, but she will not have any rights to the property in any other case.

That's how mortgages generally work.

If you're not in the US, the terminology may differ, but the general idea is the same. You do not transfer ownership to lender.

  • Why not a simple lien? Not sure if that's the appropriate thing to do in this situation. – JoeTaxpayer Sep 16 '13 at 22:03
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    @Joe because deed of trust defines what and how can the trustee do, while lien is simply blocking the sale of the property by owner. Mortgage is essentially a specialized case of a voluntary (and perfected) lien. These characteristics make it preferable both to the lender and the borrower (borrower has the benefit of the predefined trust actions, the lender has a perfected lien). – littleadv Sep 16 '13 at 22:07

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