Posted by Nate on November 02, 2000 at 10:05:37:
Right, but as Steve mentioned, if you tell the lender this, they will not make the loan in the first place.
Forgiving a 2nd Mortgage??? - Posted by HT
Posted by HT on November 01, 2000 at 09:05:02:
Will this work?
I’m approaching a deal in which I am considering using a creative strategy I believe I’ve seen listed in this forum.
I have someone on an L/O who wants to purchase, but only qualifies at 75% loan value. The deal can still work, but would require me to carry a second. This would be fine, except I want to be cashed out at closing or soon after.
I’ll accept less than my full equity if I can do this. Waiting on a balloon is not an option (broker says that the lender will not let a second have a balloon less than five years!), nor is selling the note to a broker (not enough room to get deceipt amount of cash), nor renewing the lease for another year.
I say they are not options because I don’t want them, not that I couldn’t accept any of them.
To pull the deal off, this is what I propose doing:
Sales Price: 55K
1st Mortgage (lender): 75%
2nd Mortgage (mine): 15%
Buyer (down payment): 10%
Using this breakdown, the lender will accept the deal. To acquire the cash I need, prior to closing, I would have the buyer acquire a short term signature loan (buyer should qualify) for 8K.
This cash will be presented to me (cashing me out). In return, I will forgive (call off) her 2nd mortgage.
It appears that this will provide a win-win-win scenario.
I would appreciate any feedback on my proposal.
Thanks,
HT
Re: Forgiving a 2nd Mortgage??? - Posted by HT
Posted by HT on November 02, 2000 at 18:07:56:
Thanx everyone for your insight.
While still considering this option, I am going to give further thought towards owner financing.
HT
This is paying off the second, not forgiving! - Posted by SCook85
Posted by SCook85 on November 01, 2000 at 09:27:48:
To be honest, while reading your post I thought you were going down the WRONG path. The path which is making selling homes very difficult, the path which has made “flipping” illegal in the eyes of the public. But then you changed that all when you brought up the signature loan.
I’ll start out with saying this. If your buyer can only qualify for a 75% first mortgage, they do not have good credit and it is highly unlikely that they will be able to get a signature loan for $8k. If for some reason or another they can (perhaps through work or a credit union that they have a relationship with), then I would just have them borrow the money up front and put 25% down on the home, then there is no need for a second mortgage.
The problem with the above method is that there is a question on the 1003 that asks if any portion of the down payment is borrowed, the buyer would have to answer yes to this and your loan would be turned down. Which leads you back to your second mortgage.
You can carry the second mortgage and have your buyer get a loan after the fact and just pay it off- this is not forgiving the second because your buyer is paying you. However you will not be able to make the buyer pay you because you can not put a balloon in the deal, nor can you have additional agreements with the buyer outside of settlement. Legally you can discuss it with your buyer, express your desires, and then they can choose to do it if they want to, but they will not have to.
I just ask one thing- if you can’t make this work this way, the option of pushing the appraisal may be offered, and jacking up the sales price- this is what is causing most of the problems that we are having as retailers today- I would encourage you to walk away from this practice, to sit tight and seek a better buyer that will cash you out. Sure as long as your buyer pays as agreed no one would ever know or care, but you can’t control that. Things happen and people default on loans, the fact that your buyer is only approved for 75% LTV means the lender thinks they are likely to default.
I hope this helps.
Steve
Re: This is paying off the second, not forgiving! - Posted by JohnBoy
Posted by JohnBoy on November 01, 2000 at 10:08:45:
Steve,
I think what HT was saying is that the 10% down will be the $8k borrowed on the signature loan PLUS carrying a 15% second. The borrower doesn’t have ANY money to put down. The signature loan is where the initial 10% will be coming from. So he would be forgiving the second in this case.