Re: Note Buyers - Need Suggestions - Posted by Judy Miller - American Note
Posted by Judy Miller - American Note on February 02, 2000 at 12:03:36:
One of the things I always try to do is “tell it like it is” so that no one has misunderstandings about what can and cannot be done utilizing owner-financing as an alternative when conventional financing will not work.
In the case of your friend who is what is called conventionally “an unqualified buyer”, you are facing some serious hurdles. And yet, American Note would purchase a note that was originated by the sellers of this particular property with her as the borrower.
However, there are other obtstacles to this particular scenario that you have described. The sellers have a $146,000 underlying lien that must be paid off at closing PLUS $80,000 in equity they want to pull out. that totals $226,000. If they are willing to finance the property for her, taking back a note for $207,000 based upon the terms you’ve outlined, they can do so, of course, at any interest rate they agree to. They then have recouped their investment.
But to resell that $207,000 note at only a 5-7% discount is unrealistic. First of all, you are asking for only an 8% rate on an unqualified buyer. In reality, in this situation, given the 8% interest rate, you are looking more at a 25%+ discount to offset the risk and the lower rate over a 360 month amortization with a 10-year balloon. Why would the sellers be willing to take that?
Rather, since she is the non-qualifying party here, and probably more motivated than the sellers, she is the one who might consider greater flexibility until she gets her papers in the US and has her credit cleaned up where she can then refinance. Using an 11% face interest rate might lower the discount to 6-10% at the closing table EXCEPT for her poor credit. If the sellers keep the note @ 11% for a year of seasoning, they might be able to get that 6-10% discount if her credit is somewhat “cleaned up” and she has a social security number in the intervening time. The very fact that she has the foreign status that she has is a serious problem for resale of the note unless she has good credit where she comes from, which she apparently does not.
Realistically, I would look to the sellers to expect to carry the note for at least a year to obtain some seasoning, I would create the note at least at a rate of 11% and I would be realistic that the discount on the note is going to be at least 10% in the most optimum of circumstances.
I wish I could be more positive with the factors you’ve laid out, but reality is the most valuable asset I can provide.
If you would like more personalized assistance, please feel free to contact me at American Note. Judy Miller