Posted by Ed Garcia on October 31, 2000 at 09:12:59:
John,
There is no comparison between the time it takes to get a renter out of the subject property and the time it takes a borrower to go Chapter 13 and then move it into a 7. If a borrower knew what they were doing, they could tie the property up for at least 18 months. The buyer didn’t sell it on a land contract. If you go back and re-read Mike’s post, the lender was going to buy the property and put Mike under Contract for deed.
John, I feel Mike either misunderstood the lender or the lender led Mike to believe it was going to be a Contract for deed when in actuality they meant a Contract of Sale.
The difference is a Contract of Sale spells out the terms of said sale and suffices for the time being to be the only documentation of the sale. It is generally used when a buyer is offering a small down payment and the seller does not plan to relinquish title to the property until the buyer has more equity in it. It is usually supplanted with a deed and note secured by a mortgage or deed of trust AFTER the purchaser has amassed sufficient equity in the property.
If I’m wrong, then you’re right, there would be no reason for the lender to put Mike under a contract for deed. However since they were doing it in the manner that has been described by Mike in his post, I think I’m right.
Could they be doing it as ploy to borrow against the property? Could be, but I doubt it.
I think their main concern would be to protect their self against a lengthy foreclosure.
Ed, ever hear of a hard money lender doing this? - Posted by Mike Kimbro
Posted by Mike Kimbro on October 28, 2000 at 13:34:27:
Ed,
Yesterday I contacted a hard money lender who advertises in our REI club newsletter. They will lend up to 65% LTV but the house must be purchased in their name and they will then sell it to me on contract for deed! I said no thanks.
Just curious if you have ever seen anything like this?
Mike Kimbrough
PS. Sorry I can’t make the lenders seminar. We have company in town that week.
Posted by Ed Garcia on October 28, 2000 at 21:54:31:
Mike,
As a matter of fact I have. The reason the lender lends in that manner is so they don’t have to walk the deal through a foreclosure. In addition to that, you can’t file Bankruptcy to stall payment or control the property.
When JohnBoy, jokingly suggested that maybe they want to borrow against it, that’s exactly what I watched an outfit out of Century City, California do. They took position of the property, borrowed from a bank at 8% using the property as collateral, and lent the money to the originator at 13% and 10 points.
We call that CREATIVE LENDING. You did the right thing Mike, by walking.
Ed, ever hear of a hard money lender doing this? - Posted by JohnBoy
Posted by JohnBoy on October 28, 2000 at 20:14:40:
That’s an interesting twist. Sounds like they might be borrowing the money themselves as to why they want to purchase in their name and then sell to you on contract.
Just curious, what are their terms for selling on contract?
Posted by JohnBoy on October 28, 2000 at 23:49:20:
How does filing a BK prevent the buyer from being able to stall for payment by selling on a land contract? I mean, if a “tenant” that is just “renting” from you can get away with stalling to pay rent, then why couldn’t they do this under a land contract sale?
They won’t have legal title, but neither does a tenant renting from you. They can however, claim equitable interest, and also, if the lender only lends 65% LTV, that leaves the buyer with 35% equity. My understanding is that if a buyer buying on contract has more than 10% or 20% (forget which off hand) that the court will usually “force” the seller to go through a judical foreclosure. At least that’s the way I understand how it works with land contracts.