Good clauses to have in a note - Posted by Jack

Real Estate Investing
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Posted by Rob FL on November 04, 1998 at 19:41:20:

I am trying to come up with a clause for this. How does this sound: “At the option of the Mortgagor, additional principal payments may be used to reduce the monthly principal payment, as amortized, due to Mortgagee as opposed to shortening the term of the Note.”

Do you have any suggestions? May I ask how you word your clause? Thanks so much for another great idea.

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Good clauses to have in a note - Posted by Jack

Posted by Jack on November 04, 1998 at 15:20:03:

I have a local investor who has agreed to refinance a rental property I own. I want to use some of the dead equity without selling the property, which I can’t do at this time.

The investor, with whom I had a prior business relationship that turned out well, has some rental property himself, but is somewhat unsophisticated (unlike me :-P) and is largely only concerned with getting a good interest rate. He has left it up to me and my attorney to draw up the mortgage and note.

While staying within the bounds of fairness, I am looking for all the advantageous (to me) clauses to have my attorney include. So far I have: no prepayment penalty (a given), substitution of collateral with note holder’s permission, first right of refusal in the event the note is offered for sale (which is not likely), subordination clause with written approval, principal payment reduction, property is sole security, and NO due on sale clause.

I am considering some form of balloon rollover–lender wants a five-year balloon–or graduated payments as discussed in a post below.

I welcome any and all suggestions.

Thanks,

Jack Stivers

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Re: Good clauses to have in a note - Posted by Bud Branstetter

Posted by Bud Branstetter on November 05, 1998 at 11:49:32:

You can ask for a discount to be included if you can pay off early. 10% first year, 7% 2nd, etc.
I would word the clause as such: “At the option of the Mortgagor, additional principal payments may be used to reduce the principal, as such the monthy payment may be re-amortized over the remaining term of the note.”

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CYA - Covered your bases well. - Posted by John Behle

Posted by John Behle on November 04, 1998 at 17:12:35:

Looks like you covered your assets pretty well. I can’t see any other clauses you might want in there. Good job.

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Re: Good clauses to have in a note - Posted by Rob FL

Posted by Rob FL on November 04, 1998 at 16:53:39:

How about:

  1. Must give 30 days notice before starting foreclosure proceedings.

  2. Partial release clause if you want to subdivide.

…What do you mean by principal payment reduction?

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Re: CYA - Covered your bases well. - Posted by Jack

Posted by Jack on November 05, 1998 at 08:00:58:

John,

I thought that you would recognize the clauses, 'cause I got them from you. I just wanted to make sure I was not indecently exposed, and to hear other suggestions as well.

Thanks.

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It’s a payment buydown clause - Posted by John Behle

Posted by John Behle on November 04, 1998 at 17:05:51:

It’s a clause I came up with years ago that states that if you pre-pay any part of the loan, they agree to lower the payment and keep the same term. It’s your choice. Normally a pre-payment of some kind would just shorten the amortization.

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Re: It’s a payment buydown clause - Posted by Paul Macdonald

Posted by Paul Macdonald on November 09, 1998 at 07:44:06:

Hi John,

I’d like to hear the terminology in this clause also. Sounds like a good add on. Gives you the flexibility of an ARM with the security of a fixed rate. Sweet!

PJM