Legal Question in Credit and Debt Law in Maryland

Re: Promissory notes

You definitely need to retain a lawyer to assist you in protecting your rights, particularly where you are considering loaning someone "a large sum of money."

A couple of issues are apparent (there may be more issues if more details are provided to your attorney).

The first issue is that ordinarily a mortgage lender does not want the down payment on a home purchase to come from loan proceeds. However, that is more your relative's issue than your own.

Typically, if you are lending someone money to purchase a home, you would want to get--in addition to the appropriate promissory note--a mortgage or Deed of Trust, which acts as a lien against the property in the event the loan is not repaid. This would probably have to be a second mortgage or Deed of Trust, as the primary mortgage lender would certainly want to be in first position. But the primary lender may not agree to a second mortgage on the property.

Your attorney can also assist you in drafting the terms of the promissory note--payments, interest rate, amortization schedule, remedies in the event of default, etc.--as well as preparing the mortgage/Deed of Trust.

Essentially, your relative needs what is called a "bridge loan" (i.e. will bridge the period of time between purchase of the new home and sale of the existing home). For some reason your relative either cannot, will not, or prefers not to obtain such a loan from a commercial lender. This is probably for reasons such as cost, credit issues, etc.

The bottom line here is that it sounds like you would be doing your relative a giant favor, and you need to be sure you are both adequately compensated AND adequately protected in case anything (major or minor) goes wrong.

This is a business transaction and if you don't handle it in a completely business-like fashion, not only could you lose money, but you could also end up with a fractured family relationship.

I strongly recommend that you consult with an attorney immediately so that you can explore your legal rights, obligations, and options. If you wish to discuss retaining my services, contact me at:

[email protected]

(973)-605-8995

(*Licensed in New Jersey, Maryland, and Dist. of Columbia)

[Disclaimer: The above comments are not intended as nor should they be relied upon as "legal advice", which can only be obtained by personal consultation with a retained attorney; at which time the specific facts and circumstances of your case can be thoroughly evaluated. This reply is provided for general informational and educational purposes only, and does not create an attorney-client relationship with the responding attorney.]