While it is always a good idea to have an attorney overlook any contract before you sign, this is especially important when it involves a hard money lender in New Jersey. There are some laws that do not pertain to hard money lenders, and unless you know the legalities involved, you can end up losing a great deal of money in the transaction. A real estate attorney has the expertise to make sure the contract you sign with a hard money lender abides by all federal and state statutes.
One of the most important considerations in a hard money transaction is the usury cap. In the state of New Jersey this cap is very high—30 percent—but it is still important to have a real estate attorney make sure there are no provisions in the contract that would allow the hard money lender in New Jersey to increase that rate. The typical interest rate on these loans often ranges between 12-16 percent but quite often if the borrower defaults the lender will increase that rate to the highest rate allowable by law.
Repayment Term of the Loan
It is also important to make sure you understand the repayment terms the lender is providing in the contract. This is important not only for identifying the terms of the contract but also to ensure you understand any provisions for a repayment penalty. Some states do not allow prepayment penalties, but your real estate attorney will know this information and make sure you do not contract with any hard money lender in New Jersey that attempts to bypass the law.
You need to be careful of those hard money lenders who attempt to charge exorbitant upfront fees. These lenders know those who approach them are unable to obtain financing from traditional sources either because of credit problems or because the property doesn’t currently meet licensing requirements. Because they know the potential borrower is not a candidate for a traditional loan, there are some unscrupulous lenders that may attempt to take advantage of that and overcharge for things such as appraisals, loan processing fees and closing costs.
Default and Foreclosure
It is also important to understand the terms of default and when the lender will begin foreclosure proceedings. These terms should be clearly defined in the contract so there will be no questions. Keep in mind New Jersey hard money lenders do not fall under banking laws, so your only protection is from any laws that are in effect in New Jersey. This makes it essential to have a real estate attorney to either prepare the contract (if the lender allows it) or to oversee the contract your lender prepares. Remember, you are not obligated in any way until you sign the contract; up until that time you can seek out lenders that are willing to provide terms that are more to your liking. Before you sign the contract review its contents with your attorney and make sure you fully understand everything it says.