Private money lending is a team sport.

Private lending is not like other real estate investing strategies where a do-it-yourself (DIY) approach can be beneficial and save time and money.

Setting up and vetting a virtual team for your private lending endeavors is critical for successfully and safely closing and funding loans—even if you do just a handful of deals a year. This is especially true for private lenders and fund managers who are just getting started or for smaller private lenders interested in scaling or branching out into another market. In addition to providing a necessary extra set of eyes on your loans at various stages of origination, your dream team can help keep your private lending truly passive, if that’s the direction you choose.

Here’s what and who you need to know before funding your first deal.

The Private Lender’s Dream Team

You will need several people on your team encompassing a variety of expertise and critical skills sets, including:

Attorney/Real Estate Law Firm. You will need an attorney not only to consult with you on legalities and licensing requirements but also to create your required loan documents.

Your legal team can either create a boilerplate template for you to use regularly or, better yet, draft a document each time you originate a loan. Why is the latter approach better? Although it may cost more upfront to have your attorney create a set of loan documents on your behalf, it can save you money in the long run by ensuring these documents are airtight, in case anything goes wrong with the loan. Do-it-yourself loan documents or relying on a title and escrow company to prepare them—which happens frequently—can result in a lender’s inability to foreclose on a secured loan, if not handled properly. Paying for legal fees upfront is always cheaper than paying legal fees on the backend to force performance.

Sample interview questions you may want to ask potential law firms:

• Do you have experience with supporting private money lending transactions, not just general real estate transactions?
• What should I know about usury laws, private lending laws, and other regulatory or legal concerns before lending out money in this market/state?
• What other services do you provide, such as title and escrow closing services? If you don’t do either of those, do you have recommendations for a preferred title and escrow closer?
• How much time do you require to get loan documents drawn up for a loan if the borrower needs to close quickly?

Title Insurance Representative. There are numerous reasons to engage the services of a reputable and knowledgeable title company. For starters, you should always get a lender’s title insurance policy with each loan you fund, and preferably a policy called an ALTA Extended policy, because it has more lender-protection coverage than a standard policy.

Additionally, it’s critically important to clear title before moving forward with a loan to ensure you are placed in first lien position if you are expecting to be a first lien holder. What people may not know is that title departments can be a wealth of knowledge if you work with the right one. Many are happy to share their knowledge about vesting, deeds, liens, and other title-related challenges you may come across. One small example would be having the title department clear a business entity (i.e., establish exactly how the borrower signs the loan contract). If you try to do this yourself rather than using legal or title support, you may have the borrower sign as an individual natural person instead of as their business entity. This could potentially result in legal challenges enforcing the loan documents.

Sample interview questions you may want to ask prospective title companies:

• Do you work with private lenders like myself and, if so, do you have special underwriting or closing requirements I should be aware of?
• Do you offer closing services, or can you recommend a third-party closer I should connect with?
• Do you offer ALTA Extended lender policies?
• How quickly are you able to turn around title commitments?
• What municipalities or counties do you cover?

Escrow Closing Services. Depending on the state, an attorney could provide these services, or a third-party professional escrow closing company could provide them. These third-party providers can be tied directly to a national title insurance provider like First American Title and Escrow, or they can be local third-party closers that obtain insurance for your transaction with a preferred title company.

If you go with the latter, you will need to know who their preferred relationship partners are for title services. Not all title companies provide ALTA Extended policies, such as Stewart Title; therefore, you’ll need to be aware of these limitations so you can either request title and escrow be moved to another company or not move forward with the loan at all.

Additionally, you will want to know whether the closer you work with is capable and willing to do creative real estate transactions (e.g., double closings, deals with large assignment fees, private financing, or cross collateralization). Not all closers are created equally; even within an escrow company, the closers you work with can vary in creativity and flexibility. Do your homework before opening escrow so you do not experience any delays.

Sample interview questions you may want to ask potential escrow closers:

• Do you provide title insurance services as well?
• How much do you charge for transactions? Purchases? Refinances?
• Are you able to accommodate a quick closing (fewer than 14-21 days or shorter)?
• What are the funding settlement times lines in place currently? Are they different for private lenders?
• How do you disburse money from closings?

These last two questions may not seem necessary, but some companies will hold funds for seven days and then will not wire funds to the private lender; they’ll only issue checks. Do not take for granted that you understand the service levels and standards of your escrow closer.

Contract Servicing Provider. To help manage your loan, any monthly installment payments, and end-of-year tax documents, a servicing provider can be a great help. Most provide automated withdrawals (known as an ACH withdrawal) from the borrower’s accounts, which can significantly increase the likelihood of your loan remaining current. Automating deposits into your account each month also streamlines your efforts after the loan closes by providing notification services to the borrower if the loan is late or in default.

Be sure to ask for recommendations and feedback from other lenders about their preferred servicer, as service levels vary greatly from company to company. Local banks and escrow companies may be a good alternative if you are funding only a handful of deals annually. It’s important to review any master agreements, fee schedules, and timelines needed to onboard a loan before engaging a third-party servicer.

Sample questions you may want to ask contract servicers:

• Do you have a fee schedule you could share with me?
• Do you prepare end-of-year tax statements (1099-INT and 1098-INT)? What is the timeline required to provide the documents once requested?
• What are your typical service-level agreements (SLAs) for requests such as payoff demands, lien release/reconveyance services, and customer service inquiries?
• How can borrowers make payments, and do the fees change depending on the way payment is tendered? Is there an online portal? Are borrowers able to pay with a credit card? Can borrowers pay over the phone or mail a payment?
• For brokers or direct placement lenders: If I am originating this loan on behalf of my client, what kind of account access would I have, if any, to help support this loan after it’s placed in service?

Dream Team Benchwarmers

There are several other key relationships you may want to build to help ensure your loan opportunities are properly underwritten and protected. Depending on your current level of knowledge and skills, you may want to employ the services of the following:

• A real estate professional who can help with your property valuations.
• A property insurance agent to help review insurance documents to ensure proper coverage and/or to review the insurance binder.

Determine where your blind spots are when it comes to finding and funding a loan. Then fill in the blanks before you ever get started.

Don’t Go It Alone

You will definitely need to find an experienced and well-qualified attorney, a competent third-party loan servicer, and title and escrow services to assist you from loan inquiry to final principal payoff. Filling these three critical roles ensures your loan is set up for success from the beginning. Although there are great foreclosure attorneys and asset recovery specialists in the industry, engaging their services is always a last resort.

In private lending, you don’t need to know it all. Build your team with people who can provide expert services to support and protect you every step of the way.