Episode 42: The Dangers of Lending with a Partner and How to Protect Yourself

What happens when your lending partner takes everything and leaves you with nothing? In this episode, Rich Lennon breaks down a real deal gone wrong involving a private lender who brought in a partner for a $20,000 second-position loan and ultimately wiped them out during foreclosure. The borrower never worked on the property, and the first-position lender foreclosed, recouping their full amount while leaving their partner with nothing. 

Rich emphasizes the moral responsibility of those who structure deals, especially when using other people's money (OPM), and highlights how mistakes in loan structure, foreclosure sequence, and partner communication can permanently damage reputations and tax-advantaged accounts, such as self-directed IRAs.

You’ll Learn How To:

• Evaluate the real risks of second-position lending
• Structure deals to protect your partners and reputation
• Make ethically sound decisions even when legally protected
• Use foreclosures correctly to avoid harming others

What You’ll Learn in This Episode:

• 01:16 – 01:38- What second position exposes investors to
• 01:41 – 02:23- If you’re putting the deal together, take responsibility
• 03:32 – 04:15- How the first position foreclosure can be morally wrong
• 04:20 – 06:13- Why foreclosing from the second can protect everyone
• 06:57 – 07:37- The IRA trap: tax-free, now value-free
• 08:02 – 08:32- Why legal action is rarely feasible for small loans
• 09:02 – 09:44- Moral consequences of using OPM irresponsibly

Who This Episode is For:

• Private money lenders using self-directed IRAs
• New investors partnering on real estate loans
• Experienced lenders lending in the second position
• Anyone considering using OPM (Other People’s Money)
   

Why You Should Listen:

This episode challenges conventional thinking on deal-making ethics, exposing how legal doesn't always mean right. If you want to build a sustainable lending business that protects partners, reputation, and returns, this is essential listening.

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