Note Question - Posted by Troy

Posted by David Butler on March 23, 2001 at 16:48:41:

Hello Troy,

Yeah, that can be common in certain areas from time to time. Of course, a seller can finance his own property anytime he wants. But any number of factors might prevent it, or otherwise cause it to be unfeasible.

Many, many 1st mortgages have DOS clauses. These may be worked around - my preference is lender written waiver, or no deal. If the loan can be assumed or taken “subject to”, the sellers can take back a small second, or better still, an AITD or “wrap”. (there are a wide variety of interesting materials regarding creative acquisition techniques, available here in the CREO bookstore that you may wish to explore down the road in this regard)

Depending on circumstances, it may often be better to consider other transfer vehicles, such as CFD’s (contract for deed) or lease-options. This is my preference if client is low money, or borderline credit.

There are many other possible issues to consider. However, that excellent book I mentioned previously (William Broadbent’s OWNER WILL CARRY) covers a lot of ground in related areas. Gaining a firm grasp on the major points he covers, will make it a lot easier for you to “fill in the gaps” in relation to the various “what-ifs” that come to mind… many of which you may quickly figure out the answer for on your own. Then you can always fall back on discussion groups like this, but you’ll have a much clearer picture of specifics in framing a particular question(s).

Hope this helps, and Super Selling!

David P. Butler

Note Question - Posted by Troy

Posted by Troy on March 22, 2001 at 13:54:46:

Simple question: I am a real estate agent & would like to offer owner financing as an option to help my sellers sell their home faster. How do I know if the property/seller/buyer qualify?

Thank you.

Re: Note Question - Posted by Michael Morrongiello

Posted by Michael Morrongiello on March 22, 2001 at 21:10:10:

Troy:
It typically is NOT whether the buyers will “qualify” but can the transaction be structured in a manner where the seller(s) get what they want (an acceptable amount of Lump Sum cash), the buyers get into the property that they otherwise might not be able to, you earn your commission, and the note funder is COMFORTABLE with their exposure in making the deal happen.

What I like to convey to most note brokers, Realtors, Rehabbers, Mortgage brokers, etc. is that when dealing with seller financed “notes” to put a deal together, we are working with a custom tailored product as opposed to an “off the rack” mortgage product.

I commend you to considering these options as they truly will enable you to close more deals in this year.

To your success,
Michael Morrongiello

Re: Note Question - Posted by David Butler

Posted by David Butler on March 22, 2001 at 15:16:33:

Hello Troy,

Good for you… always a real pleasure to see real estate agents get back in the game. That’s were the private note business started from, after all!

One of the real benefits of dealing in the private note markets is that there is a great deal more flexibility. That’s the primary reason most of these notes are created in the first place - either the property doesn’t qualify for conventional financing, the buyer doesn’t qualify, or the financing that is available is unattractive to the point that it doesn’t work for one or both of the principals to the transaction.

I am not quite certain where you are going with your question however… in terms of how do you qualify the deal to protect your seller, or in terms of selling the note to a note buyer when the property is sold? I ask this, because though the two overlap a great deal, in general an experienced note buyer will be somewhat more risk tolerant than the average seller.

On the other hand, a note buyer will usually be more thorough in checking the details of the note, the payor and the credit history.

Certainly, if you are considering a seller-financed offer, you will definitely want the Buyer to COMPLETELY fill out a credit application. I recommend using a generic form similar to what landlords use for running credit checks on prospective tenants (this helps insure that the parties understand you aren’t doing a “loan” transaction). Or you can get a similar form from your local bank. (You can easily get a Form 1003 about anywhere, but that’s a residential loan application, and if you think the note might be sold, it’s generally better to avoid using that if possible). AND RUN THE CREDIT…

And do just what lenders do. Require income and employment documentation from the prospective Payor. Two years is best… if they are employed, ask for copies of the two most recent W-2’s and two most recent paystubs. If they are self-employed, ask for two years tax returns and a YTD profit & loss statement. Keep copies of all this stuff in file.

If you (your seller) intends to sell the note shortly after closing, it is probably best to go ahead and get an appraisal done ahead of time. At the least, I would be sure to have a thorough CMA in file, in case he decides to sell the note sometime later on down the road.

To get some idea about qualifying the deals, you will likely find our FREE report, NOTE GRADING/PRICING GUIDELINES very helpful, at:
http://notenetwork.com/at.cgi?a=118510&e=Reports/Note.Pricing.Guidelines.html

In addition, there is a wealth of related information regarding creating notes, clauses, etc. right here on this discussion board. Use the search facility, and plug in some keywords such as “creating notes”, “creating notes for sale”, “table-funding”, “simultaneous closing”, and similar. This will bring up a lot of pointed discussion you will find invaluable in your efforts.

If you are dead serious about CLOSING MORE DEALS, and making this a regular part of your normal business routine, you can do no better than to invest in several excellent books you should keep on your desk for ready reference at all times. These were written by long-time top real estate brokers, for real estate brokers… and they will do you a world of good.

OWNER WILL CARRY (William Broadbent, $30)
Real Estate Finance & Investment Manual (Jack Cummings, $35)
CALCULATOR POWER (Jon Richards, $40)

Follow this path should quickly bring you to the top of your game in the alternative financing marketplace.

Hope this helps, and best wishes for your continued success!

David P. Butler

Re: Note Question - Posted by Troy

Posted by Troy on March 23, 2001 at 06:29:49:

Thank you for your reply. I will do additional research.

One more question: If the seller has a loan on the property they are selling, 85 - 95% LTV, is owner financing an option for them? Many seller I’ve come across don’t have much equity in their homes.

Thank you again.

Troy