Posted by WilliamGA on November 08, 2000 at 22:25:45:
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I want to make sure I don’t kick myself… - Posted by Tom Nagle PA
Posted by Tom Nagle PA on November 08, 2000 at 18:43:44:
Hi folks…
I have a question about a home that I am selling on a lease option tomorrow. Quick scenario:
Bought this home last week for 70K
*Paid 35K cash -
*35K Note @ $275/month 0% interest
*The mortgage has no due-on-sale and says that it “This mortgage will remain subordinate to the underlying first mortgage granted to Stonehedge Funding LLC (hard money)and all future extensions, modifications, replacements, or refinancing thereof.”
*FMV=97K-100K
*Repairs=5K
Found lease purchase buyer immediately, and I am going to structure it as follows:
*Sale price: 100K
*Rent: $1000/month $100 Rent Credit
*Option consideration: $2K
*Credit 1K towards first month rent for bringing the property up to snuff (and code)-work to be done prior to move-in
*Credit 2K in material (will credit additional 1K but will roll that in to the purchase price)
I hope I haven’t lost you yet.
Anyway, I think these people will qualify sooner than they think (young couple and their mother all on the lease), but I do not want them to purchase it and pay off my seller-held 0%-interest note.
I want these people to get financing to pay off my hard money - and let them pay a second to me. I don’t care if the note the buyers pay me is close to prime - my note to the seller will pay off in 127 months, but the buyers will continue to pay me for the next 360 months.
What kind of language would I use in the option part of the agreement? Should it say that they will only obtain financing (in a first position) for, say, the first $50K and that I will hold finacing for the rest at, say, 1.5% over the prime rate? Should their be a no-refi clause for the 127 months (10.5 years) - until my seller-held note is paid off? Or there would be a hefty penalty?
I apologize for the length of this - any help would be greatly appreciated.
Thanks,
Tom Nagle
www.tomnagle.com
Re: I want to make sure I don’t kick myself… - Posted by JPiper
Posted by JPiper on November 09, 2000 at 07:40:42:
Good question. I’d probably just specify the exact terms that are acceptable to exercise the option, that being that you will carry a second mortgage at a particular interest rate for a particular period of time.
By the way, I would check with a title company and/or attorney to see if there are any conditions regarding this subordination clause in your note. In some areas you may have to have the seller execute a new subordination agreement as a condition of title when the property is resold. Might be worth checking.
An alternative to worrying about whether the tenant/buyer wants to pay all cash at exercise might be to attempt to obtain a substitution clause on the note…moving the note to another property for some type of small cash payment to be applied to principal.
The other obvious thing is that this seller would be ripe for a discount in all probability IF the new buyer did pay cash.
Lots of possibilities. Sounds like some nice problems to have.
JPiper