How to lend privately without losing your shirt.
The number-one rule of private lending: your protection is the property, not the borrower. These are the patterns we've seen separate professional lenders from the ones who get burned twice and never come back.
Know your licensing position before you lend.
California is one of the strictest states for private lending. Lending against owner-occupied 1–4 unit residential typically requires a California Finance Lenders License (CFL) or DRE broker license. Lending against non-owner-occupied investment property (the typical hard-money fix-and-flip case) is often exempt — but exemptions have limits (loan count, advertising, etc.).
If you make more than a handful of loans per year, talk to a real estate attorney about whether you need a CFL or DRE license. Doing more than 8 non-owner-occupied loans in a year, or any owner-occupied lending, is where things get serious.
Use a licensed escrow / title company. No exceptions.
Wiring directly to a borrower without escrow is how lenders lose principal. The escrow company holds funds, records the deed of trust against the property at the same time funds disburse, and handles payoffs at exit. They are the licensed neutral party.
Reputable CA options: Old Republic, First American, Chicago Title, Fidelity National, Stewart Title. Pick one with experience in private/hard-money closings — they exist and are worth the call.
Don't fund without a recorded deed of trust and lender's title insurance.
Your security is the property. The deed of trust must be recorded with the county recorder before (or simultaneously with) funds disbursing. Title insurance (ALTA Loan Policy) protects you if there's a defect in title — undisclosed liens, forgeries, missed easements.
Confirm with escrow that the closing instructions include: (a) recording of the deed of trust, (b) lender's title insurance issued, (c) hazard insurance binder with you as loss-payee, all prior to disbursement.
Underwrite the property hard. The borrower is secondary.
On a hard-money deal, the borrower's credit and income are signal but not collateral. The collateral is the property and your LTV. Pull comps yourself. Verify ARV with an independent appraisal or a BPO from someone you trust — not the borrower's number, not the agent's number.
Stress-test the deal: what happens if the rehab takes 50% longer? If the market drops 10%? If the exit takes 9 months instead of 4? Your LTV cap should leave room for all of those.
Typical hard-money guardrails in CA today: 65–75% LTV on after-repair value, 70–80% LTC (loan-to-cost), 6–18 month term, 9–13% interest, 1.5–3 points. Above those numbers, your risk premium needs to grow.
Verify wire instructions before sending — and beware reverse fraud.
Wire fraud cuts both ways. The classic version: borrower thinks they're wiring closing costs to escrow but actually wires to a fraudster. The reverse version: a fraudster impersonating escrow tricks YOU into wiring loan proceeds to the wrong account.
Before you wire, call your escrow officer at a number you looked up independently — from their company website or your prior closings, not from the email — and verbally confirm the wire details. Yes, every time. The 60 seconds saves seven figures.
Use real loan documents. Don't drop in a template you found online.
California has specific requirements for private mortgages: certain disclosures on owner-occupied loans, late-fee caps, default rate considerations. Generic templates miss these and can render parts of your loan unenforceable.
Engage a real estate attorney to draft your standard package (note, deed of trust, personal guarantee, environmental indemnity, assignment of rents). Once it's done, you can reuse it across deals with minor edits. Cost is typically $1500–$3500 — a small fraction of even one loan.
Get usury right. Know your exemption.
California's constitutional usury cap on non-exempt private loans is 10% per year (or 5% over the Fed discount rate, whichever is higher) for personal/family loans, and the higher of 10% or 5%-over for other loans. Hard-money deals routinely run 9–13%.
The standard exemption is the licensed-broker exemption: a loan arranged by a DRE-licensed real estate broker is not subject to the cap. If you're not licensed and not exempt, your high-rate loan could be voidable. Talk to an attorney about which exemption applies to your business model.
Hardline's role: coordination, not custody.
We don't take loans onto a balance sheet, custody funds, or service the note. The wire goes from your bank to the borrower's licensed escrow / title agent — never to Hardline. We help you find borrowers, exchange documents, and track the lifecycle. The legal relationship is strictly between you and the borrower.
If anyone claiming to be from Hardline ever asks you to wire to us, it's fraud. Report it.
Pre-funding checklist
- Independent ARV verified (appraisal or trusted BPO).
- Stressed LTV still below your cap under reasonable downside scenarios.
- Licensed escrow / title company engaged.
- Preliminary title report reviewed; no unresolved liens.
- Lender's title insurance binder issued.
- Hazard insurance binder issued, you named as loss-payee.
- Loan docs reviewed by your attorney — note, deed of trust, guarantee, assignment of rents.
- Wire instructions verified by phone with escrow.
- Recording instructions confirmed with escrow.
- Borrower KYC complete on Hardline.
This page is general educational content, not legal, tax, or financial advice. Hardline is not a lender, broker, escrow, or title company. Lending laws — including licensing, disclosure, usury, and tax — vary by state and by transaction type. California rules apply to California transactions. Engage your own attorney before lending.