WHY take back a “throw away” 2nd ? (LONG) - Posted by Michael Morrongiello
Posted by Michael Morrongiello on February 11, 2000 at 21:58:19:
Lets be frank here. You did what many investors do (Heck, I’ve have even done on occasion) and that is you accomodated your buyers. You helped them into the deal and you were willing to be flexible so that you could sell this home. That 2nd lien you took back is risky, its posistion is tenuous, it sits behind a much much larger 1st lien lender that is in the “drivers seat”. IF the underlying 1st goes bad, or your 2nd lien goes bad, it will not be a pretty picture. You’ll be feeding the 1st lien, and your attorney, while you foreclose on the smaller 2nd lien. With only 10% intital cash put down by your buyers there is little in the way of cushion.
Now you are finding out that cash liquidity & Marketability for that 2nd lien virtually does not exist unless you are willing to DISCOUNT that note substantially to offset the risk.
Obviously the buyers could not meet a lenders qualifying for a 90% loan to value loan or you would not have had to carry back any financing.
My suggestion next time is to consider using SELLER FINANCING to sell your flipper property.
I submit to you that when you are dealing with a B/C type credit borrower who can put down at least a 5% or more cash down payment that a note funder can in most cases ADVANCE more CASH up front to you than a lender would be willing to originate for these same payors.
That means you may not have to carry any 2nd lien at all OR at the very least the amout and size of the 2nd lien that you will carry would be LESS than what you would have to carry had the payors gone and originated a new 1st lien loan through a B/C type lender.
A professional note funder who has lots of experiece with simutlaneous closings and deal structuring can most time assist in this type of transaction.
You’ll get more CASH at closing and don’t have to carry a 2nd lien at all or at the very least the amout of the 2nd lien is lessend. More CASH at closing so that you go out and chase another deal. Isn’t that what you really were after?