Re: Selling with Seller-financing - Posted by Craig_NOLA
Posted by Craig_NOLA on November 04, 1998 at 17:50:35:
I’m assuming from your post that you’d be reselling the property using a “wrap.” If this is the case, it would indeed trip any due-on-sale clause stipulated in the underlying financing, and the lender would have every right to accelerate the mortgage. As to whether they would actually discover the new sale or choose call the loan if they did is a question I’ll leave for some of the financial professionals out there.
One way to avoid the problem altogether would be to sell the new first lien note that you create for cash, pay off the underlying mortgage, and keep the balance as your profit on the deal. In fact, this could all be done at the same time via a simultaneous closing.
Some considerations: As John Behle often recommends, never create a note that you intend to sell without first securing a buyer for the new note. If you do, you may find that the note you’ve created is either unsaleable or will only sell at a substantial discount. You may also want to write into the purchase agreement that the sale is contingent upon selling the note to a third party at closing for $XXXX.
Also, the new buyer’s credit and the size of their downpayment will certainly effect the saleability of the note. In particular, it will effect the discount amount and the LTV that the note buyer is willing to accept. If the buyer does have so-so credit or a small downpayment, you may have to take some or all of your profit on the deal in the form of a second lien note (which to me still seems preferable to doing a wrap).
I hope this helps. If any of the above is unclear or if I can answer any specific questions, feel free to e-mail me.