The Essential Loan Document Package Every Private Lender Needs

A bad loan document can turn a good deal into a nightmare. After funding thousands of loans at Hard Money Bankers since 2007, I can tell you that proper documentation is what separates lenders who collect from lenders who get stuck holding the bag. The difference between a clean exit and a messy foreclosure often comes down to paperwork that was signed months earlier.

This is not the glamorous side of private lending. But it is the side that protects your capital when things go sideways. And things will go sideways eventually. The question is whether your documents give you the tools to handle it.

What This Guide Covers

• The Core Documents That Matter Most
• Promissory Note: Your Promise to Pay
• Mortgage or Deed of Trust: Your Security Instrument
• Personal Guarantee: Skin in the Game
• Assignment of Leases and Rents
• Closing Instructions: The Document Title Companies Sign
• LLC Verification and Authorization Documents
• Title Review: What the Title Company Will Not Tell You
• Supporting Documents That Complete the Package

The Core Documents That Matter Most

A typical loan document package for a single-member LLC with a personal guarantor runs about 17 documents. That sounds daunting. Borrowers sometimes balk at signing 80 pages. But every single document serves a purpose, and the package has grown over time because each addition came from a lesson learned the hard way.

There are really four or five documents that do the heavy lifting in these transactions. The rest are supporting players that fill gaps and close loopholes. Understanding what each document does helps you know what to fight for when something goes wrong.

Promissory Note: Your Promise to Pay

The promissory note is the foundation. At its most basic, it is the promise to pay. Think of it like a personal check. It is a negotiable instrument that can be endorsed over to someone else. You need the ORIGINAL document to enforce it.

This document sets out the loan amount, the interest rate, and the schedule for payment. It covers whether payments are interest-only on a monthly basis or if some interest is deferred. It spells out prepayment terms. If the borrower wants to pay off early, can they? Is there a lockout period? What is the prepayment penalty?

The promissory note is typically shorter than the mortgage. When you get originals back from closing, this document goes in the safe. It is the piece of paper you will need if you ever have to enforce the debt in court.

Mortgage or Deed of Trust: Your Security Instrument

The mortgage or deed of trust secures the payment obligation set forth in the note. This document is much longer and much more extensive. It covers environmental issues, taxes, insurance, what happens if the property is condemned. It contains all the events of default language.

This document gets recorded with the county. Anyone who runs a public search after closing will see your secured interest in that property. This visibility matters. It puts the world on notice that you have a claim.

If the borrower does not pay and you choose to foreclose, this is the document you exercise remedies under. The note is the promise. The mortgage is the enforcement mechanism. They work together but serve different functions.

Different states use different instruments. Some use mortgages. Others use deeds of trust. The function is the same, but the foreclosure process varies. Know your state. The American Association of Residential Mortgage Regulators maintains state-specific information on lending regulations worth reviewing.

Personal Guarantee: Skin in the Game

For private lending transactions, a full recourse unlimited guarantee is customary. At Hard Money Bankers, 99% of deals require every single member on the entity to sign a personal guarantee. Very few exceptions in 4,000 loans over 18 years.

Here is the logic. If you take a $250,000 loan in an entity with no other assets, losing the property might not feel like a big deal. That is the risk the borrower bargained for. But when that borrower knows they are PERSONALLY responsible for paying back the loan if the project fails, everything changes. They become much more invested in making sure it works.

The guarantee is a joint and several obligation independent of the borrower’s obligations. This is important. You do not have to start a foreclosure before pursuing the guarantor. You can pursue the guarantee independently. You can say the property is not worth the trouble and go straight after the guarantor’s assets. You can do both simultaneously. You can wait and pursue for a deficiency after foreclosure. These are independent enforcement paths.

What About Non-Member Guarantors?

Can someone who is not a member of the LLC sign a personal guarantee? The crux is consideration. What is that guarantor getting out of the loan besides doing a buddy a favor?

The guarantee should include language stating the guarantor acknowledges receiving value in return for their guarantee. The magic words are “for good and valuable consideration, receipt and sufficiency of which is acknowledged.” With that language, you should have an enforceable guarantee.

That said, a savvy guarantor with no relationship to the project could argue they never received any value. Different courts view this differently depending on guarantor sophistication. The standard structure keeps guarantors connected to the property one way or another.

One more thing. A bad borrower will bring down a good borrower before a good borrower brings up a bad borrower. If someone weak wants to bring in a cousin with good credit just to sign, that does not help much. The cousin is not operating the deal. Focus on who is actually doing the work, not just who is on the hook.

Self-Directed IRA Exception

Sometimes borrowers use self-directed IRAs to own property. The IRA cannot personally guarantee. In these cases, reduce exposure substantially. Drop LTV by 15 to 20 percent in lieu of a personal guarantee. More equity is worth more than a guarantee you cannot collect anyway.

Assignment of Leases and Rents

The assignment of leases and rents is somewhat duplicative of language in the mortgage itself. But recording it separately is customary. What it does is give the lender a secured interest in revenue the property generates.

If you have a mixed-use building with retail and apartments and the borrower defaults, this document lets you capture that rental income. Send a letter to tenants with a copy of the assignment instructing them where to send rent now. Some will comply. Some will call the landlord confused. Either way, it puts pressure on the situation and can generate cash flow during a default.

Some attorneys in certain jurisdictions question enforceability. But sending the letter and requesting rents has minimal risk. Worst case, tenants ignore it. Best case, you start collecting. One default in New Jersey netted payments from five or six of eight units just from sending that letter.

Closing Instructions: The Document Title Companies Sign

The closing instruction and document checklist might be the most CRITICAL document in the package. This is what gets sent to the title company as page one. Here are your instructions. Here is what is expected. Here are all the documents.

When a foreclosure case or title insurance claim arises, the first thing to do is go to the last page of the closing instructions where the title agent signed it. Send that right to the title company. If there is a title claim, chances are something got missed. But whether they messed up or not, they signed agreeing to everything outlined. That signature matters.

Most title agents sign without reading. If they were reading carefully, they would push back on certain provisions or note items they cannot deliver by funding. But they just do not. This works in your favor when problems arise.

The closing instructions cover fees for the HUD, tax and water bill status, insurance requirements, construction reserve handling, verification of entity documents, disbursement procedures, no power of attorney language, no secondary financing language, commercial purpose confirmation, and post-closing document return requirements.

Commercial Purpose Language

The closing instructions should state this loan is strictly for business or commercial purposes. If the title company has any knowledge the proceeds will be used for anything else, they cannot close and must notify you immediately. This protects against consumer lending regulation issues.

No Secondary Financing

Unless explicitly permitted upfront, secondary financing is not authorized. If a borrower shows up wanting to use a gap funder or second mortgage, that is a business decision. But the default position is no. And reminder: if your loan is going in as a second, you are almost certainly triggering default under the first lien. There is rarely an intercreditor agreement. The borrower takes that risk, but know what you are walking into.

No Power of Attorney

Power of attorney cannot sign a personal guarantee. It will not hold up in court. Very rare exceptions exist for repeat borrowers where the guarantee side is already secure. But the default answer is no power of attorneys.

Avoid Remote Online Notarizations

Online notarization became popular during the pandemic. Title companies permit it for recording and insurance purposes. But permitting something and it being smart are different things. Remote notarization invites fraud. If the person on the Zoom call is not who they claim to be, you might have an insured mortgage and a title claim at best. But when you try to enforce a note or personal guarantee against a fraudster, good luck.

The strong preference is having borrowers sit down with a notary at the title company and close the old fashioned way. It eliminates the fraud concern that pops up when doing things remotely. Convenience is not worth the risk.

LLC Verification and Authorization Documents

When reviewing organizational documents, look for two things. First, who owns interests in the entity. Second, who is authorized to sign on behalf of the entity. These are not always the same. A manager-managed LLC might have an individual manager authorized to sign who is not even a member. The IRS provides guidance on LLC structures that helps clarify these distinctions.

Knowing ownership determines who guarantors will be. Knowing signing authority prevents unauthorized signatures from creating enforcement problems later.

The Company Certificate and Resolution

The company general certification states this is the borrowing entity, it was formed on this date in this state, and attached are true, complete, and correct organizational documents. The borrower resolution independently authorizes the specific loan transaction.

This matters because LLCs can have multiple operating agreements floating around. Nothing gets recorded. Someone could show you an outdated agreement while a newer version with different members exists. The certificate forces them to attest that what they provided is accurate and current.

Even if the operating agreement already provides blanket authority for loans, prepare separate resolutions anyway. Get all members and managers to sign. This belts and suspenders approach prevents anyone from claiming later they did not know about or authorize the loan. Title companies should ask for this. Sometimes they do not do their homework. Do not rely on them.

Title Review: What the Title Company Will Not Tell You

There are two sides to closing a loan. Loan docs and title review. Both need attorney involvement. Both are custom for each deal. The title company does not represent you. They represent the title insurer first and foremost. Whatever they provide protects the insurer, not you as the lender.

You need counsel to review the title commitment and negotiate endorsements. Unless you are an expert in title work, you cannot determine which endorsements are best for your situation. This is not optional.

Title Insurers Are Getting Tighter

Here is something worth knowing. Recently, title insurers have been turning down a higher percentage of claims than normal. They are basically denying everything and saying sue me. For whatever economic reason, they are not as willing to pay out as they used to be. This makes the signed closing instruction letter even more valuable. When an insurer pushes back on a claim, that signed document showing exactly what the title company agreed to becomes your leverage.

Endorsements Are State Specific

Endorsements in title insurance are jurisdiction specific. Some general endorsements work in just about every state. Others are available in some states but not others. The commitments look a little different depending on where you lend. Your attorney needs to know what is available in each state you operate in so you are requesting the right protections.

Schedule B Part 1: Where Problems Hide

The title commitment has two relevant sections in Schedule B. Part 1 lists requirements. Buried in there among driver’s license requests and organizational document requirements are the items of most concern. Existing mortgages, judgments, tax liens, federal liens. Things that need to be removed or addressed at closing.

If you want to get ahead of long lead items that could kill a deal, look at Schedule B Part 1 first. A payoff mortgage is no problem. But a tax lien or judgment the title company refuses to insure over creates real issues. The borrower will have to pay it off or escrow at closing. Catch this early.

Verify the Title Company

There is real risk with title companies themselves. Fraud happens. Companies steal money. Commitments turn out to be fake. Verify the title commitment with the title insurer directly. Call the number on the commitment and confirm the commitment number is valid and the title company is in good standing. If they are writing through First American, call First American. If it is a small title insurer you have never heard of, ask them to write through a major insurer instead. First American, Fidelity, Chicago, Old Republic. Stick with companies that will be around if you have a claim. The American Land Title Association publishes standards and best practices worth understanding.

Pro Forma Policy or Markup Acknowledgment

At closing, you should receive either a pro forma policy showing exactly what your final title policy will look like once recording information is filled in, or at minimum an acknowledgment from the title company that your markup of the commitment is acceptable. The markup then serves as your policy until the final policy is issued. Get one or the other before funding. Do not wire money and hope the final policy looks right.

Risk Decisions on Title Exceptions

Some title issues require business judgment calls. A utility easement where the telephone company can trim bushes is low risk. A covenant restricting property use might kill a deal depending on the borrower’s plans.

When something concerning appears, discuss the risk versus reward and make a business decision. A $2,000 water bill on a $300,000 loan against a $500,000 property might be worth accepting. A restriction on restaurant use matters if the borrower plans to build a restaurant. Context determines everything.

Supporting Documents That Complete the Package

The remaining documents fill specific gaps:

Confession of Judgment (Pennsylvania and select states): This is a remedy available in Pennsylvania and a few other states that expedites the foreclosure process. To make it enforceable, you need independent acknowledgments and waivers from whoever signs a document containing the confession language. Not available everywhere, but where it exists, it gives you a faster path to resolution in default.

Correction Compliance Agreement: If there is a mistake in a document or a missed signature, the borrower agrees to cooperate to fix it. Simple but necessary.

Borrower Affidavit: Attests this is a commercial loan, not a consumer loan, not for residential or personal purposes.

Agreement of Contractual Rate of Interest: Separately sets out the interest rate so the borrower cannot claim they did not know what they were paying.

First Payment Letter: Not legally required but helpful. States the interest rate, monthly payment, stub interest paid at closing, and when the first payment is due. Eliminates confusion about payment timing since interest is paid in arrears.

Escrow Waiver: Short-term loans typically waive tax and insurance escrows. This conditional waiver says as long as there is no default, monthly escrows are waived. Escrowing makes sense for 30-year mortgages. It creates unnecessary tracking burden for 12-month bridge loans.

Anti-Money Laundering Declaration: Exactly what it sounds like.

Construction and Security Agreement: For deals with construction holdbacks, this document governs disbursement. How draws are released, what documentation borrowers must provide, scope of work, draw fees, inspection requirements. Included when there is a construction component, omitted when there is not.

ACH Authorization: Set borrowers up on ACH at closing. Chasing payments is annoying. Automate it from day one.

Assignment Documents for Investors

If capital comes from private investors who want collateral security on their investment, four documents handle the assignment. An allonge to the note endorses the note or a percentage of it to the investor. An assignment of the mortgage is recordable but often held unrecorded absent a default. An assignment of the assignment of leases and rents. And a general assignment covering the rest of the loan document package.

Whether assignments get recorded is a business decision. If recorded, the investor becomes lender of record and receives all notices. Some investors want that. Others prefer staying off public record with documents held in trust by a third party custodian.

The Process That Makes It Work

Documents alone are not enough. The process matters. At Hard Money Bankers, when a file is ready to close with title commitment and everything in place, an email goes to legal counsel with a loan info form breaking down borrower information, guarantor information, loan terms, purchase contract, and LLC docs.

The attorney prepares loan documents and reviews title simultaneously. Before loan documents are even complete, an email goes to the title company introducing the parties, stating multiple emails are coming, and outlining endorsement requirements. A second email delivers the marked-up title commitment noting what is needed, what can be removed, what must stay. A third email delivers the full document package with closing instructions.

Before funding authorization, signed documents and the signed HUD must be reviewed. Two minutes of scrolling confirms signatures are in place and everything is properly executed and notarized. If something is missing, the title company tracks down the borrower before anyone leaves. No funding until the package is complete.

Gross Funding for Clean Paper Trails

Some lenders net fund, meaning they deduct fees and reserves before wiring to the title company. At Hard Money Bankers, the preference is gross funding. Wire the full loan amount to title. Then receive a wire back that itemizes the construction reserve, origination fee, commitment fee, per diem interest, and any other amounts owed. This creates a cleaner banking trail and simpler accounting. Journal entries are messier. Gross funding means the books match the bank statements without reconciliation headaches.

This process took years to refine. Back and forth between lender, attorney, and title company is inevitable. The goal is minimizing it. When everyone knows their role and expectations are clear upfront, deals close smoother.

Final Thoughts

Loan documentation is not glamorous. Borrowers complain about signing 80 pages. But those 80 pages exist because every provision came from a situation that went wrong for someone. The package grows because lenders learn from experience.

Silo the work appropriately. Legal counsel handles legal documents. The lender handles business decisions. When you try to cross over, problems multiply. Have an attorney who understands private lending prepare and review documents. Have counsel review title commitments and negotiate with title companies on your behalf.

This is what protecting capital looks like. Not exciting. Not fast. But absolutely necessary.

If you want to learn more about building systems like this for your lending operation, consider joining Hard Money Mastermind. You will get access to a network of 2,600+ private lenders who have navigated these exact issues, monthly live coaching where questions like these get answered in real time, and the complete Hard Money Masterclass covering the systems that built a $50M+ lending operation.