Note Buyers - Need Suggestions - Posted by Carmen_FL

Posted by Carmen_FL on February 02, 2000 at 13:06:47:

I understand all your points, and of course I understand the note buyer’s position. Just to clarify:

  1. This buyer does not have poor credit. She has good credit established in Argentina, and no credit established here (yet). I don’t know if that makes a difference.

  2. I understand the point about flexibility; of course. I’m trying to figure out IF a note such as this is saleable; it could be that the owners will agree to finance w/o ever trying to sell the note (they’re not very savvy in this area, and may not even know it’s possible to do so) for the 5-10 years (I’m giving it 10 years as a bargaining chip; we’d take 3-5, just long enough to refi). But, if I can offer them an alternative, perhaps it will sound less “scary” if they can sell the note sooner.

  3. Let me then ask you this - how long would the seller have to hold a note for an “unqualified buyer” (if it was paid perfectly on time) before it becomes a “sellable” commodity with a reasonable (5-10%) discount?

Note Buyers - Need Suggestions - Posted by Carmen_FL

Posted by Carmen_FL on February 01, 2000 at 23:00:36:

I am working with a buyer to buy “the house of her dreams”. She’s a friend, so she took me along to talk to the sellers. This is a home to live in, NOT an investment.

This lady is on a business visa, has been here a year, and is opening a subsidiary of her foreign company. She will be getting her social security/permanent residency within the next year, but as of yet does not have it. That means she has no credit established - she is getting divorced, and most of the bills, etc. were in her husband’s name, so even non-traditional credit will be difficult to establish. She can get a “foreign national” mortgage with 25-30% down, but would rather not (of course).

We found a house with very motivated sellers, comps at about $255K. The sellers will take $227. Sellers are flexible, will consider lease option, etc. (or so they say). They owe $146K on the house; put down $80K when they bought 2 years ago. They are willing to take their equity over time. House in better than perfect shape. They are building a new house and need to move.

We’re going to be presenting multiple offers on Thursday. I’d like one of the offers to be for $230K, Owner Financing, at 8%, with $23K down, with a balloon in 10 years. Since my friend does not have credit established, nor a social security number, what can I tell these people about the possibility of selling the note if they decide to do so in a year or so? Or at close, actually - is that a possibility?

Will anyone buy it? At what discount? How long will they have to wait to sell? Or, how to structure it so it will be easier to sell? (remember, I’m on the BUYERS’s side, and 12% interest rates are not that interesting to her)

I want to be realistic. If this were a “normal” transaction, with reasonable credit, I know they could sell the note for about a 5-7% discount at the closing table.

Any note buyers with this type of experience?


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