Private Mortgage (between friends): Any advice on how to set up?

[gradstudent]

I know there must be a Promissory note laying out the terms of the agreement and how the debt will be repaid and mortgage / deed of trust that must be registered. I've found some blank templates for Promissory notes and they seem straightforward. I'm having less luck finding how to properly execute the mortgage and record it.

Next question: Once that is done, the interest is tax deductible but no 1099 will be issued. Anyone have experience with this?
https://www.irs.gov/publications/p17/ch23.html says "Deduct home mortgage interest that wasn't reported to you on Form 1098 on Schedule A (Form 1040), line 11. If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11."

[bobechs]

1. Go to the courthouse.

2. Ask for the office where mortgages are recorded.  This is usually the County Clerk, but depending on where the property is, the office name may vary.

3. Ask to see the last five, ten, fifteen... whatever, mortgages recorded that day.  They may be on computer or in paper form.  That varies too. 

4. When you see a couple that you like, ask for copies of them.  They do not need to be certified and the reproduction charge varies from place to place.

5. Use those as forms.  You will have to change the dates, names of the parties, the legal description and the exact terms in the documents- those will vary.

6. If on reviewing the samples you have chosen you can't figure out what all the moving parts are, or do, or how to put it all together you may have bitten off more than you can chew.  Ability to competently draft your own legal documents varies considerably across the population.

[CashFlowDiaries]

Sounds like you will be providing seller financing. Just a few years ago there were new dodd frank laws put in place so be sure to read up on that.  Here is some info on that:  http://barneswalker.com/seller-financing-restrictions-under-the-dodd-frank-act/

Honestly though i would hire a lawyer to draw up all the docs and to be sure you are in compliance with all the whacky laws out there regarding this type of stuff.   Its worth it to pay a few hundred bucks to be sure you are in the clear especially if that note goes bad and you have to take the house back.

[EAL]

I have purchased a few investment homes from friends in seller financed situations. Even if it is a friend, make sure everything is in writing and done properly. One, you never know when the friendship may have a hiccup, even if you think it never will. Two, they are a little stickier if you want an additional mortgage, you have to provide more documentation. I had two seller financed mortgages before I purchased homes three and four through a traditional mortgage. We had to get copies of the cleared checks for the last two years since there was no official tracking or credit reporting.  Just make sure everything is correct. I would recommend having an attorney do the paperwork and enlisted a title company to ensure the accuracy of everything.