0% interest and Substitution of Collateral? - Posted by dave

Posted by Hank on January 30, 2002 at 01:57:19:


Or the big tent under which most creative real estate deals can be structured?

I look foward to Gatten’s new book that might just expand (as mentioned above) and therefore simplify, this whole PacTrust matter.

0% interest and Substitution of Collateral? - Posted by dave

Posted by dave on January 29, 2002 at 20:26:44:

Hello All,
This is an open request for stories and experiences that you investors have had with sellers holding a note at 0% and agreeing to “walk the mortgage” to another property or asset. Giving you the ability to sell their property and keep the 0% interest loan. In my mind, this just seems to good to be true (and hard to imagine). Any experiences posted would be Greatly appreciated. Detailed stories would be especially awesome, I am trying to learn as much about this type of deal as possible.

Thank you in advance,

dave (bal’mer)

Re: 0% interest and Substitution of Collateral? - Posted by MoniqueUSA

Posted by MoniqueUSA on February 03, 2002 at 17:27:06:


These kinds of deals are made, not found.

It does start with a motivated seller. And this is true of any deal that you want – L/O, Subject To, owner financing with interest, owner financing with no interest, etc.

Our approach is simple. If we are buying a property Subject To and the seller has enough equity that they won’t sell it to us for what they owe, we tell the seller that we will pay them once we get the property sold. So, if we are buying a house for $140K and there is a mortgage of $125K, we will pay the seller their $15K in a lump sum once our buyer qualifies for a new loan. If the exit strategy is a Lease Option, then the seller gets their cash when the T/B gets a new loan. This is a typical no interest, no monthly payment deal.

Take note that this kind of structure does not involve substitution of collateral. We generally push for subtitution in exchange for paying interest if we have to pay interest to make a good deal happen.


Re: 0% interest and Substitution of Collateral? - Posted by Brent_IL

Posted by Brent_IL on January 29, 2002 at 23:48:53:

Getting terms is my thing.

Once I dispose of the all-cash request, I start at 0% and work up. It doesn’t happen by plugging in a zero interest rate. It’s a combination of terms and concessions which results in an effective rate lower than the nominal interest charge. I get 0% sometimes, but it is usually a springboard for negotiation. If I agree to make a down payment, my interest cost is usually between 2 and 3.5%. If the seller is making his own down payment, my effective rate hovers around 7%.

I won’t sign a deal without substitution of collateral because I need flexibility to finance or re-sell. The contract has at least three variations of clauses that accomplish the same thing so if one or two get kicked, the third slides through.

To a terms person, substitution of collateral, and to a lesser extent, subordination, is one of the essential points of the deal.

This is also discussed in the archives.

Re: 0% interest and Substitution of Collateral? - Posted by Bud Branstetter

Posted by Bud Branstetter on January 29, 2002 at 22:45:47:

Not every time but many times. I do a lot of Bill Gatten EHT type deals. People leave their equity in the property without interest or appreciation. They just don’t think of it a zero interest. If I said will you carry a second for no interest they would resist.

I have also done non-recourse,no interest, payments not made tacked on the end with no interest. I have substituted collateral and secured notes against other notes. These people obviously had some motivation. I just had to ask if we could do it that way. I also pay cash, but I want deep discounts. The EHT is the best devise for the no interest loans.

Re: 0% interest and Substitution of Collateral? - Posted by Glen SoCAl

Posted by Glen SoCAl on July 31, 2003 at 10:06:05:

Hi Brent-

I copied your last post about substitution of collateral but saved it incorrectly…lost it.

Will you please send it to me? Or just send me the CRE link?

Thanks again, GLen

First time I’ve seen EHT - Posted by MoniqueUSA

Posted by MoniqueUSA on February 02, 2002 at 24:11:07:


Is the Equity Holding Trust simply a Personal Property Trust that holds a note as its asset? Or, is it a flavor of a PacTrust that provides you and/or the noteholder some special benefits.

We do a number of no interest, no payment seller-held notes. Would love to improve our approach with a new vehicle, if we can.