Bona Fides? - Posted by David Butler
Posted by David Butler on September 12, 2004 at 14:51:01:
Not sure what your role is, in that you have referred several times to your “client”… but based on informaiton you have provided otherwise, what the current title holder essentially did here - is purchase a “contract for deed” - which naturally requires the transfer of title to him.
In the absence of any other details, it would appear that he simply “overpaid” for the interest he now holds, under the fundamental parameters of “note” and/or “cfd” investing, in that as written, it appears he may have paid par value for note. The confusion lies in your reference to the fact that he “… was able to pull some cash out”. Not sure how he managed that, but due to that fact, it may be that he essentially did discount the note one way or another.
But in this situation, the occupant is clearly not a “tenant”, but rather, the equitable owner. Big legal distinction, though ramifications of that distinction vary widely by state.
The new Vendor now has the right to receive the remaining balance on the CFD at the rate and terms specified in the agreement, and to “terminate the equitable interest” of the Vendee in event of default, again according to the existing terms and conditions of the CFD.
Can he sell that CFD to another party? Certainly… provided he can find one! But there are several complications possible here.
One, he will face a very small market of potential of uninformed buyers who will pay will pay anywhere near par for that CFD in the absence of some other compelling circumstance that might make it attractive otherwise. Second, curious as to how he “pulled some cash out” of the purchase transaction, without somehow damaging the Vendee’s interest in the property - or alternatively - the interest of whomever brought that cash to the table? Not saying it can’t be done, as I am not the most creative REI on the block - but something doesn’t smell right about this thing?
If there was “actual” or “constructive” notice of the CFD, your contract holder may be in the position of giving up his “bona fide holder” status, in the event some liability was created to the Vendee or other parties to the transaction.
Not sure how this helps you here, but the best I can think of based on what you have stated and asked for. Hope it does something for you, and best wishes for whatever it is you are trying to accomplish here for your “client”.
David P. Butler