Posted by Leon on November 13, 2000 at 06:52:56:
I see what you and Jonboy are talking about. I was surfing the note buying boards and seen that most of them have a buy value of 80-85%ITV Than was my reasoning. My buyers credit is not all that great but I do not want to get killed on the discount. I could write it for 95% LTV instead of 95% CLTV and take the discount if needed. But I may just write it for 12 months and get the refinanced. Thanks for you input
Contract for deed/ Note Buying? - Posted by Leon
Posted by Leon on November 12, 2000 at 16:23:07:
This may seem to be a stupid question, but here it goes.
Say I buy this home that I am looking into taking it subject to the first Mortgage. Here are the numbers
FMV 62,000
Mortgage balance 42,000 and change
I am going to give sellers 2K to walk and I take over the Mortgage *(Not Assume)
I will Have 44K plus about 2K in Fix up so 46K max. The 2K fix up I think I can pass on to my buyer.
I already have a buyer for the property that has 3500 to put down.
Here is what I was thinking of as far as terms
Do a 85% first of 52,700 360 term 12% rate
And a 5,800 second 360/60 term at 12%
Since this is going to be a Subject to transaction I need to structure the sale to my buyer right. I plan to sell the first after I season the payments say 6-12 months.
My question is according to the terms above can I do a Contract for deed and sell it? I know that all the other liens have to be paid but what type of paper work is involved? I have a FNMA type mortgage and Note do I use it and not record? I just need some clarification.
Re: Contract for deed/ Note Buying? - Posted by JohnBoy
Posted by JohnBoy on November 13, 2000 at 24:44:49:
If you’re going to go through the trouble of seasoning the note, then why not just write up a contract for deed for the full purchase price. After 6 - 12 months if you’re able to find a buyer to buy the contract for deed, than you shouldn’t have any problem in getting your buyer to just refinance the contract to pay you off. Any note buyer is going to require your buyer to qualify just as much as a lender will, if not more. So why discount the contract when you don’t have to?
The only time it would make sense to sell to a note buyer in my “opinion” is when your buyer has a contract that is for a longer period of time and you suddenly need the cash out of the deal before your buyers contract comes due and they refuse to refinance early. Then you may want to sell the note because you can’t wait.
Draw up a contract for deed amortized over 30 years with the contract due and payable in full in 12 months. This means your buyer has to refinance within a year. At the end of the year you can rewrite the contract if your buyer has a problem getting refinanced. If your buyer has a problem getting refinanced after a year, then more than likely you won’t find a note buyer willing to buy the note either, with the exception of maybe taking a STEEP discount on the contract to make it attractive enough for a note buyer to purchase it. Why discount at all if you don’t need too?
Re: Contract for deed/ Note Buying? - Posted by B.L.Renfrow
Posted by B.L.Renfrow on November 12, 2000 at 17:59:22:
Why not just do a contract for deed for the $52,500 balance?
With a 5% downpayment, and 6-12 months of seasoning, you shouldn’t have too much trouble selling the note, assuming your buyers’ credit scores are halfway reasonable. Just make sure you factor in a discount.
Since it’s a subject-to, you should do an unrecorded land contract with your buyer. Also have them sign a standard promissory note. Along with the purchase and sale agreement, that’s it for paperwork.
Check Bill Bronchick’s site at www.legalwiz.com for a good example of a land contract. He also has a standard FNMA promissory note available for download there.
BTW - Nice deal! And the only thing “stupid” is the post below.
Brian (NY)
Good Job Leon! But be aware… - Posted by Curtis
Posted by Curtis on November 12, 2000 at 17:35:21:
Hey Great Job in snagging this one up! As far as paperwork that you’ll need… That would be a receipt book thats it! If the buyer insists on more than that, simply say “Do we have a deal or not” If they say NO, then guess what? You keep all of their deposit and find a new buyer! They can’t do jack to you because they agreed!. Then you go find a new buyer and do it all over again. You get their cash and when they want all that fancy paperwork that the “Banks” give out, you just say sorry sir, I just don’t do business like that, just take the receipt I’m providing or walk. If he walks then GOOD! you keep the cash and continue on till you get a serious buyer! This is one of the coolest ways to make fast cash in REI!
I’d want to get this one sold though before a slick realtor approaches you and tries to outsmart you into listing it. They are known to be bad when it comes to CFD’s
Best wishes Leon, and I’m glad to help you anytime my friend.
Curtis
Re: Contract for deed/ Note Buying? - Posted by HT
Posted by HT on November 13, 2000 at 09:59:23:
Hey JohnBoy,
What would you do with your buyer if they can’t get refinanced after a year?
Would you just rewrite the contract with the balloon due the following year? If so, what do you do with the original contract? Do you just file it away in your personal records?
Also, what would be the benefits to possibly renewing a contract for deed as oppossed to just placing the buyer on an L/O? Don’t you possibly face a more difficult and expensive time removing them from the property?
Thanks in advance for your feedback.
How about this? - Posted by Leon
Posted by Leon on November 12, 2000 at 18:51:04:
Why not just do a contract for deed for the $52,500 balance?
The contract price is 62,000 I was told it is better to have a split mortgage note say one for 80-85% of the purchase price and a small second? Is this correct? I think I mis lead you by stating that the Purchase Price was 52,700 This represents 85% LTV ann with a 2nd to me for difference from there down payment. I am just trying to figure the structure. Please disregard the criticisim below. Keep Posting.
Leon
What an insult to Leon! - Posted by John C
Posted by John C on November 12, 2000 at 18:27:41:
Leon!
Having this guy call you “STUPID” on a public forum is an all out outrage! In case you didn’t see it, it is the very last line of his post.
Hey, we got his number and we all know now what value his posts have…0 ZILCH!
Great Investing once again
Re: Contract for deed/ Note Buying? - Posted by JohnBoy
Posted by JohnBoy on November 13, 2000 at 10:33:59:
Depending on how the buyer has performed over the first year (paid on time, taken care of the property, exercised good faith in cleaning up any credit problems and/or worked on paying off debt needed to qualify for a loan, etc.) I would rewrite another contract and allow them another year. Otherwise, if they have failed to do the things they were required to do so they could qualify for a loan, then I may not rewrite the contract again and require them to pay off the contract or lose the property.
In my state you can file for eviction under a contract for deed providing the contract is for LESS than 5 years AND the buyer doesn’t have more than 20% equity in the property. Otherwise you have to foreclose under the state statue pertaining to mortgages.
Each state has different laws pertaining to contract for deeds so you need to check your state to see how these are handled.
Re: How about this? - Posted by B.L.Renfrow
Posted by B.L.Renfrow on November 12, 2000 at 19:31:50:
Leon,
You are, of course, correct: my “stupid” comment referred to that idiotic post by “Curtis” or “John” or whatever name he’s using. The real Curtis who posts occasionally is, I believe, a loan originator or mortgage broker; this guy is simply a lame imposter…guess the kiddies often come out on the weekends around here!
I posted the wrong number above. I meant to write “Why not do a contract for deed for the $58,500 balance?”
While there’s certainly nothing wrong with a split note, I’m not sure it would make much of a difference when you go to sell the first. Most of the note buyers are looking heavily at seasoning nowadays, so with a seasoned note and established payment history, I am not sure that it would make a whole lot of difference in your discount upon sale whether it’s at 85% or 95% LTV. But if you have a note buyer in mind, it certainly wouldn’t hurt to run it by him or her for their input before you do the deal with your buyer. But again, there’s nothing wrong with your plan…I just like keeping things as simple as possible!
Brian (NY)
Re: What an insult to Leon! - Posted by Leon
Posted by Leon on November 12, 2000 at 18:45:20:
I think he was referring to the post that Curtis was writting about. I always read Brian’s post he is a Fountain of Info…
Good Luck on investing