My understanding of paper mortgage accurate? - Posted by Anonymous Newbie
Posted by Anonymous Newbie on January 27, 2002 at 02:41:47:
Okay, I’m extremely new to this and am trying to understand how to buy foreclosures and create your own mortgage. The following is an account of what I understand would happen in a hypothetical example, in which, let’s assume, the private investor is a man.
Please, please clarify any misconceptions or erroneous transaction descriptions. Point out anything that is obviously misunderstood by me, and shine a little light. Thanks!
You attend an HUD auction and bid on a house that you have estimated to be worth $100,000.
You win the highest bid at an HUD auction for a house. Your bid is for $50,000.
After having won the bid, you sign a contract with the HUD that says you owe them the $50,000. You know need $50,000.
You decide to create your own paper mortgage to sell to a private investor. You place a classified ad and attract the interest of a private investor.
You dicuss the deal with the private investor. He agrees the house is worth $100,000.
You write the paper mortgage with the investor. 1) You agree that he will write you a check for $65,000. This is the mortgage amount. 2) You agree on an interest rate is 12%. 3) You agree that the loan period is one year with payments due once a month. This means that by one year, you must have payed him $65,000. This also means that the interest rate is %1 per month 4) The mortgage calls for “interest only payments.” This means that for each month the $65,000 has not been received, you owe the $65,000 plus 10% of your remaining balance as of that month.
The private investor writes you the check for $65,000. You write a check to the HUD for the $50,000 you owe. This settles your debt to the HUD.
You decide to repair the property using $5,000 from the $15,000 remaining after receiving the $65,000 check, then paying off the HUD. This leaves you with $10,000 cash.
One month passes while you repair the property and your first mortgage payment is due to the private investor. The balance is now at $66,000 because the entire mortgage of $65,000 has not been payed off.
You write a check to the private investor for $1,000 to pay off the interest incurred, using funds from your remaining $10,000 after HUD payoff and repairs.
Midway through the next month, you find a buyer for the house, which is now entirely fixed up and done being repaired.
You and the buyer agree that he will buy it from your for $80,000. He gets his money wherever, and write you a check for $80,000.
You cash the check for $80,000 from the buyer. You write a check for $66,000 to the private investor. This settles your mortgage to the private investor. You destroy the paper mortgage.
Your end result is that you have $9,000 left over in cash from the private investor’s check, and $14,000 from the buyer. You have no debt and have made $23,000.
The END (finally!)