Family Lending Guide for Consumers

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CANHR’s Guide to Reverse Mortgage Alternatives

Is an Inter-Family Loan Right for You?

Are you a senior homeowner who needs to access cash, but are concerned about the significant risks and costs associated with a reverse mortgage? If so, you may want to explore other ways to tap into the equity in your home. Consider an Inter-Family Loan with a Secured Promissory Note Agreement.

In a nutshell: An Inter-Family Loan with a Secured Promissory Note Agreement is a private arrangement among family members. It can be a lower-cost, more flexible alternative to a commercial reverse mortgage.

The basic elements are:

  • The family fronts the homeowner the money they need.
  • In exchange for the contributions, the homeowner agrees that the contributors will be paid back, with interest, when the home is sold.
  • The terms of the loan and the right to be repaid are spelled-out in a written agreement called the Secured Promissory Note Agreement.
  • A second written document called the Contract Lien is needed. The Contract Lien must be recorded (filed) with the County Recorder in the county where the home is located. This tells the world that the contributors have a right to be repaid.

Done properly, families who can support their elders in this manner may create a win-win situ- ation. They can meet the financial needs of the senior while keeping costs down and preserving the family wealth. See the Appendix B for a realistic example.

This Guide is designed to help families get started with basic information about crafting an Inter-Family Loan Agreement and Contract Lien. This Guide is only a starting point. If you decide to proceed with an Inter-Family Loan Agreement, protect the legal rights of each party to the agreement by consulting with a qualified lawyer and tax professional. These pro- fessionals can help draft a contract that reflects your unique situation and protects everyone’s interests.

Step One: The Big Picture

Family members should have a firm understanding of potential risks, legal and otherwise, and be willing to consult with a qualified legal professional for advice.

Step Two: The Nuts and Bolts

The key parties are the Owner of the real property and the family member Contributors. The loan creates a mortgage against the Owner’s Home Equity. An Inter-Family Loan is an alterna- tive to a commercial reverse mortgage and involves a Secured Promissory Note Agreement and a Contract Lien.

Step Three: Follow these tips to decide if an inter-family loan is right for your family

Bring the family together. Keep all terms transparent and all participants fully informed. Schedule a family meeting to discuss. Prepare to consult a qualified lawyer and tax professional if you decide to go forward.

Step Four: What Should Be Discussed at the Family Meeting

Appoint a note taker. Explore alternative options. Discuss the benefits of proceeding with an Inter-Family Loan with a Secured Promissory Note. Discuss the role of each contributor and decide which professionals to contact for advice.

Step Five: Getting Started and Protecting the Contributors’ Right to Reimbursement

Meet with an estate planning attorney to get legal advice specific to your family’s situation and to draft the Secured Promissory Note Agreement and the Contract Lien. Your attorney should have the Contract Lien recorded (filed) with the County Recorder in the county where the Own- er’s home is located. Learn about any problems with the property and use a formal process for any changes to the original agreement.

If the Owner is on Medi-Cal or may enroll in Medi-Cal in the future, you should take steps to avoid Medi-Cal Recovery. Consult CANHR’s Medi-Cal Recovery Guide or contact CANHR at (800) 474-1116 for more information.

This guide is meant to cover the basics for an Inter-Family Loan Agreement. For a more in depth guide, please visit: fs/familylendingguide.pdf.



  1. California State Bar Lawyer Referral Service:

  1. California Certified Public Accountants (CPA):

  1. Contribution Spreadsheet:

  1. Family Caregiver Alliance Factsheet on Personal Care Agreements:

  1. Long-Term Care Information:

  1. Medi-Cal Recovery Claims Information:

  1. Sample Inter-Family Loan Secured Promissory Note Agreement:

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CANHR does not endorse any individual on the referral list.