Contract for Deed with bank loan - Posted by JP

Posted by JP on August 14, 2002 at 20:13:16:

The business is a laundromat & most banks will only finance for 5 years. I don’t want the party buying to run into to many problems with the payment by having to many loans. But since my posting I contacted another banker that said they would be more than happy to give me a loan with a contract for deed. It’s worth refinancing even if I don’t sell the building. I then contacted my bank that I have the loan from & boy did I get an earfull they said that they would immediately call in the loan if I went contract for deed & wouldn’t even consider lowering the rates of my loan. Thanks for both of your responses

Contract for Deed with bank loan - Posted by JP

Posted by JP on August 12, 2002 at 21:34:10:

I have a loan for $85k through a bank and have someone interested in buying my Building & Business for $197k. I wanted to go contract for deed with 10% down. The people that want to buy contacted me today & said the lawyer told them that if I had an existing loan that I would not be able to sell to them a Contract for Deed. Also he said that he would have to trust me for the payment on my loan if they did. So unless he made the payment to both me & my bank He would not feel comfortable. I don’t feel comfortable with someone else making my payments.
Anyone with knowledge on this please respond. Thank You

Re: Contract for Deed with bank loan - Posted by Eric C

Posted by Eric C on August 13, 2002 at 09:47:28:

Hi -

Nate’s solution is a good one and is done all the time.

On the other hand, any particular reason you’re set on selling CFD?

Ten percent downpayment isn’t bad for a pure RE play (the building), but it’s a very (VERY) small downpayment for a business. In another life, I used to purchase notes created when a business was sold and the owner carried back some (or all) of the financing. I never experienced trouble with any of those notes where a large down was made (50%) wasn’t unusual, but … you can fill in your own conclusions.

I’m unsure how the CFD would be helpful to you. If you sell the business, then they will be incurring a lot of liabilities just to stay in operation. You know inventory, customers, premises, etc.

Just because you can get the business (and building) back easily (without much of a fight)doesn’t necessarily mean you will want it back, understand?

I’m assuming you have a profit here, or you have a live prospect. In either case, you are making a judgment call as to whether these folks (1) have the financial ability to come up with the DP; (2) understand the business well enough to successfully continue operations until you’re fully paid; and (3) that there will be no “air bubbles” in either your cash flow until then. These could come about due to your fault – needing more money for some reason; their fault – just lousy business people; or nobody’s fault – the economy continues to sour or the market no longer likes their product or service).

I hope you’ve cleaned your crystal ball lately.

There are always alternatives. Split the deal into a RE component and biz note – this will make the RE note more marketable or bankable. The biz note won’t be worth very much (in most cases).

Or, you could write their whole involvement (or most of it)as a second. You would maintain some control (not a lot, granted)and the foreclosure process is pretty much clear cut in most places. Writing a second would also give you a chance to bump the interest rate (I would) and insert some face-saving (or other anatomy friendly)provisions.

Good luck,

Eric C

PS - I would probably speak directly to their attorney and get the word from him (her). I would take this time to point out that a second would not place his clients in any better position, and in fact, might cost them some money. In other words, I would thank him(her) – always throws them for a loop.

Have you got an attorney here? If not, why not? Accusations of misrepresentation down the road won’t accomplish much to put money back into your wallet.

It you’d like more, tell us more.

Re: Contract for Deed with bank loan - Posted by Nate(DC)

Posted by Nate(DC) on August 12, 2002 at 23:03:47:

Well it seems you can’t both be happy. He doesn’t want to rely on you to make the underlying payments, and you don’t want to rely on him to do it.

Why not have a third-party escrow service handle the payments?