Posted by Brent_IL on April 15, 2002 at 01:37:34:
The point is that the seller must hold a note to get rid of the property. They don’t have any cash-laden buyers making them full-price offers.
Sellers will often accept a second position if:
1- They feel so secure that they will be paid as agreed that their loan position is irrelevant.
2- They?re not getting offers and you?re the only buyer around. They take a chance on you and get on with their lives.
3- The sellers don?t really comprehend the effects of a junior position and how it will affect them. They agree because you asked for it.
You can increase your percentage of acceptance if you incorporate the subordination clauses into your purchase agreement and only deal with sellers who are motivated to sell now.
Although I prefer straight subordination or substitution-of-collateral, I’ve done a seller first, institutional second, and seller third a couple of times. You can also split the seller financing into a first and a second if you want to sell a note for cash at closing and need a good LTV.