creating a note and selling at the closing table - Posted by rob

Posted by Larry on January 24, 2000 at 06:33:14:

Judy, that was excellent. Iwish my typeing skills were better to communicate on this thing but your advise is great!!! The seller carring a second on a land contract is something I have ever thought about. What a great idea!!! Thanks so much.

creating a note and selling at the closing table - Posted by rob

Posted by rob on January 23, 2000 at 08:01:32:

Anyone had any luck (as a seller) creating a note at the closing table for the entire amount of purchase and then selling that note at a discount and using the proceeds to pay off the underlying first and pocketing the rest?


Re: creating a note and selling at the closing table (Long) - Posted by Paul_NY

Posted by Paul_NY on January 23, 2000 at 14:22:05:

I’m going through the same situation right now.

My buyer has agreed to put 5% down. Getting a down payment is by far the most difficult part of this process.

I have sold notes before, but only after the buyer paid on it for more than three months (aka ‘seasoning’).

When doing a simuteneous close you will be asked to discount your note more than if it were seasoned.

Read the following article which appears on this site:

Creating A Time Machine
I have created a time machine.
Just think back to the remember when days… remember when you could buy a house for $6,500, hold on to it for a few years and sell it for $30,000…if I could do that now I’d buy ten. Well I’m here to tell you. You can. I just did. The city was Baltimore, but the location can be anywhere that inner city decay is prevalent: Board ups, drugs, high crime etc, exactly the place everyone expects to find a fortune…
The method has 4 steps (Courtesy Robert Allen) 1/ Find it. 2/ Fund it. 3/ Fix it. 4/ Farm it.
1/Forclosures, Delinquent Taxes, REO’s etc.
2/Seller held financing from tired landlords, REO Depts. or credit cards.
3/Fix it to FHA minimum standards. Get a copy from an appraiser.
4/Farming it or selling it to some of the inner cities’ poorest eligible inhabitants is the essence of my money making idea. FINANCING IS KEY.
It is one thing to fix the property to FHA standards, but quite another to sell it that way. The process is slow and tedious and many good people don’t quallify. Often it is for lack of funds that cannot be overcome by seller assistance above the 6% level.
So, What to do?
BE THE BANK… But you say, "What about the Due on Sale clause or that credit card debt?"
The answer is to create a note to sell the house and at the same time sell the note to create the cash to close.
A couple of months ago I posted an entry on this site titled “A Noteable Question”. I asked if it was possible to create a note on a property I was selling and then to simultaneously sell it to an investor at the closing table. The answer was YES.
I chose Mike Jones from Mid South Funding to work with and he showed me how to write the contract, structure the deal, the terms on the note, etc. This is what we came up with: Sale price $30,000 First trust of $24,000 @12% x 20yrs 2nd Trust of $4,500 @12% x 20yrs balance paid as down payment.
$24000 @ 12% x 20 yrs = $264.26
$ 4500 @ 12% x 20 yrs = $ 49.55

The first would be sold at a discount to produce a yield of 13.8% ($21,500) This would pay off our $8,000 release on the blanket mortgage we have on the ten properties, provide the funds to close including the seller assistance that FHA wouldn’t have allowed and still leave us with a balance of $11,396.03 and the 2nd trust of $4,500. Not bad for a $6,500 investment and about $2,000 worth of fix up.
The Buyers too are happy. They have a decent home with monthly payments of $314 plus taxes and insurance, on a property they would have had to pay $400 to rent.
In conclusion, I believe my time machine is unique. Investors have overlooked the possibilities of our inner cities and its residents as an opportunity to create wealth and bring back those communities. This system is very workable. I have done it and continue to use it. The profit potential is only limited by the original cost of the house and how many you can complete in a year. Good Luck.
Regards Howard Hudson.

Good article eh?

Here is a list of items to collect in the meantime.

  1. Closing statement (proposed if this is a simultaneous closing)
  2. Real Estate Lien Note
  3. Deed of Trust or Mortgage (recorded-w/recordation numbers on it)
  4. Warranty Deed (that has been recorded-w/recordation numbers on it)
  5. Amortization Schedule (if you have one)
  6. Fire and Hazard Insurance Deceleration page
  7. Mortgagee Title Policy, if you have one , or Owner’s Policy
  8. Payment Verification for the immediate past 12 months i.e., copies of deposit slips from the Bank or Institution or, end-of-month Bank statement
  9. Pictures : 4 to 6 pictures of the front, side, back and some street shots of the surrounding area (for all commercials we will need 24-36 pictures, anything that will help sell the deal, all amities on property and near by)
  10. City and street maps
  11. Plat map and Survey, if property is in a rural area
  12. INFO. on Buyers, i.e., social security numbers, Home & Work address & phone numbers.
  13. Credit Report on Buyers
  14. Information on property, i.e., 3 bedrooms, 2 bath, fenced, 2 car garage, on 1 acre, with fire place, well, out buildings and city population
  15. Tax certificate from your local tax appraisal office
  16. Copy of the Mobile Home Titles
  17. If this is a second lien position note, we will need copies of the First lien and Deed of Trust, and the name and address and account number and phone number of the First Lien holder.
  18. Any other information you feel is pertinent to the deal.

email me with any other questions!
Best of Luck

Re: creating a note and selling at the closing table - Posted by larry

Posted by larry on January 23, 2000 at 08:26:47:

As a realtor I’ve done it several times for clients. With out a down or seasoning the note will be greatly discounted. Try to get some buyer cash in it. With 10% down I’ve sold them for 80-90% of value.

Re: creating a note and selling at the closing table - Posted by Judy Miller - American Note

Posted by Judy Miller - American Note on January 23, 2000 at 14:31:32:

There are several factors that will determine the discount. You can definitely sell a 90% note at the closing table, however, the discount will be attributable to the following: how good the buyer’s credit is, the “investment to value” requirements of the investor, the face interest rate on the note created, the “look” and condition of the house or property, etc. Most investors don’t like to put more than 80 to 85% “investment to value” in a residential property on a good day, when the borrower’s credit is very good. So if there is only a 10% down payment, it is probably advisable that the seller take back a small second so that the 1st is not discounted very much. If the 1st is 90%, and even if the credit is good, you can expect a discount of at least 5% of the value of the property, or more. The best method is to create a note that is 85 to 97% of the sales price, a high face interest rate (since you may have a non-qualifying borrower), and carryback a small 2nd. Investors like to see the property/note seller have some confidence in the borrower by holding that 2nd and sharing some of the risk. The truth is, the worse the credit of the borrower, it is advisable to create that much smaller a 1st, and that much bigger a 2nd, to offset the “investment to value” limitation of the investor, and to share some of the risk. In fact, this will minimize the discount in the sale of the note as well, as long as it is structured correctly.

When there is no or a small down payment borrower, which is typically reflective and expected when the credit is subprime, then it is definitely important to
create a 1st mortgage that can minimize the discount whereby the investor only has to pay to 70% investment to value" of the property. Investment to value differs from loan to value. There may be 100% in loans, but the investor is only going to invest up to a certain percentage of the value of the property.

These notes where no down payment and poor credit are definitely marketable as long as the seller takes back a big enough 2nd to offset the limit in invested dollars the investor is willing to go. In this way, the seller can minimize the discount. But there is going to be a discount. What is happening is that the seller is turning a property to a less-than-perfect borrower, probably for top dollar. He must expect that the opportunity to sell that owner-financed note has its costs, which is the discount on the sale of the note, and having to take back a 2nd rather than getting all his money at once out of the sale of the property. That is not to say it can’t happen, that someone will purchase the property and have a good down payment and conventional financing, and the seller can get all his cash. But those are not the circumstances we are talking about. We are concerned only with those circumstances when conventional won’t work. Then we have to get creative, and structure an owner-financed transaction that maximizes the return to the seller, AND creates a marketable note at the least discount. It is a challenge!

I’ll be working hand-in-hand with CREONLINE people at the CREONLINE convention in Atlanta next month going over lots of examples of how this can work to your best advantage. Hope to meet you.

Judy Miller

Re: creating a note and selling at the closing table - Posted by rob

Posted by rob on January 23, 2000 at 08:52:58:

what about if the seller is willing to carry a small second??