Balloon Question - Posted by DougO(NM)
Posted by DougO(NM) on March 11, 2000 at 18:55:43:
I think I already know what I’m gonna need to do on this one, but thought I would put this out there for you cash flow wizards to see if there might be anything else I should think about. My self directed IRA bought (through a Land Trust)some property, and yesterday when I went to pick-up my private lender to go to the closing, she decided that she wanted to add a 60 month balloon to the note. (Seems she’s been sick the last few days and is feeling like since she’s in her 70’s she shouldn’t do a 15 year note) I did get her to agree to let me put in something like “the balance shall be due and payable in 60 months, unless otherwise extended in writng by the noteholder” Anyway, it’s too late to find other financing or not buy the property, and this really puts a “kink” in my plan. (I bought the deal since I “thought” she was doing a straight 15 year note) The original note is $58,000, 180 months, 8.25%, $562.88n ow with a 60 month balloon. It’s a $70,000 property, we paid $63,000 and put down $5,000 At the end of 60 months the balance will be about $43,000, giving us around $20K hard equity. Since it is a trust (no recourse and other payor friendly clauses in the note) and ultimatley an IRA, and in order to make the deal cash flow anything over 8.5% is pretty much OUT, a refi at a bank, etc. is pretty much out. There is NO WAY this lady would sell the note at a discount (if she’s still with us and I pray she will be) so I am thinking my only option if she won’t extend is to locate another private lender that will think 8.25% and a 60% LTV is “good-enough”. We are setting it up at an Escrow company so we will have a payment history established that we can show a potential buyer.
Anyone think of anything else I might consider ?
Sorry if I’m too detailed here, and thanks in advance for any ideas anyone may have.
P.S. I just thought to myself that since the note allows for subsitution of collateral with the note holders approval, maybe we could walk the note & mortgage to other property we might own, release the original mortgage, the property in the Land Trust /IRA would then be Free & Clear. We could then borrow against the other property with another entity or personally if need be. See any problems with this scenario ?