Posted by Brad Crouch on February 23, 2000 at 05:36:12:
Jim,
Thanks for your response. I have to confess that I have only skimmed it for now because it’s so late and I still have so much to do. But I have printed it out and will give it a thorough reading in the morning.
I just wanted to let you know before too much more time passsed, that I appreciate the time and patience you have shown. Maybe I’ll get my mind bent in the right direction yet.
Thanks a million,
Brad
OK PROS! JPiper,Bud,Brad,etc…"NON-RECOURSE"missing link?? - Posted by Gene S Hou Tex
Posted by Gene S Hou Tex on February 19, 2000 at 18:28:58:
I just received a $20 report “Model Lease/Option Agreement” that contain the following clause under further assurances from L/S to T/B:
(B) A Second Mortgage, covering the subject property, for the face amount of $20,000, NON-RECOURSE to the Landlord/Seller, for the term hereof, granted to the favor of the Tenant/Buyer or its designee, in a form and manner suitable for public recording; and
In selling the Performance Mortgage to the L/S I have seen many posts and articles offering reasons why the L/S should go along. Creating an “insurable interest” for the T/B by Bronchick seemed to be a big breakthrough in 1998 archives as the best reason.
I have never seen any reference to the Performance Mortgage as being “non-recourse”. If this means the L/S has no personal liability, then it seems this would be a “HUGE” selling point. If so, maybe this is a “missing link”. Any comments from anyone would be appreciated.
“NON-RECOURSE” . . . - Posted by Brad Crouch
Posted by Brad Crouch on February 20, 2000 at 04:27:03:
Gene,
> (B) A Second Mortgage, covering the subject property,
> for the face amount of $20,000, NON-RECOURSE to the
> Landlord/Seller, for the term hereof, granted to the
> favor of the Tenant/Buyer or its designee, in a form
> and manner suitable for public recording; . . .
I think this means that the landlord/seller has no recourse against the tenant buyer.
This would do little to help the case in favor of getting a performance mortgage, in my view. It might actually make the case worse.
Have you looked at Bill Bronchick’s performance mortgage? They carry the form numbers 3016 & 3017 (mortgage or trust deed, depending on the State). Each of these forms are 4 pages long (legal size) and are pretty classy, in my opinion.
If those forms are not available on Bill’s website, then I suggest you buy his “Nuts and Bolts . . .” course. There are lots of forms included, both in hard copy form and on editable diskette.
Good luck,
Brad
Re: “NON-RECOURSE” . . . - Posted by Gene S Hou Tex
Posted by Gene S Hou Tex on February 20, 2000 at 21:26:46:
Hi Brad:
I think I am correct in saying that the “non recourse” is for the benefit of the seller. I have Bronchick’s Perf Mtg but it doesn’t have this “non recourse” benefit in it . So… I think what I am asking you pros is…if I had a lukewarm partially motivated seller with a good deal on a sandwich l/o is this a good thing to insert in my Perf Mtg to get seller to sign it? In case of seller default down the road how would it work? Thanks!
Re: “NON-RECOURSE” . . . - Posted by JPiper
Posted by JPiper on February 20, 2000 at 11:18:42:
Brad:
If the landlord/seller gives a performance mortgage to a tenant/buyer why in ANY case would there be recourse against the tenant/buyer? Struggling to see your reasoning here.
JPiper
Re: “NON-RECOURSE” . . . - Posted by Brad Crouch
Posted by Brad Crouch on February 21, 2000 at 03:29:50:
Gene,
So far we disagree on who benefits from the clause you posted. I may be reading it wrong, so we’ll have to wait for an attorney of RE investor with LOTS of experience, to jump in.
See my posting to Jim Piper, above.
Brad
Re: “NON-RECOURSE” . . . - Posted by Brad Crouch
Posted by Brad Crouch on February 21, 2000 at 03:23:12:
Hi Jim,
I’m not a lawyer and I certainly make room for the possibility that I’m interpreting this clause incorrectly, but the thing says, “. . . non-recourse to the landlord/seller . . .”. Doesn’t this mean that the landlord/seller has no recourse? Doesn’t this put him in a tighter “box”?
And it also says, “. . . granted to the favor of the tenant/buyer . . .”. Doesn’t this mean that the landlord cannot persue any damages from the tenant/buyer (defaulted payments, trashed property)?
Here it is again. Maybe you could give me an idea where I am going wrong here.
> (B) A Second Mortgage, covering the subject property,
> for the face amount of $20,000, NON-RECOURSE to the
> Landlord/Seller, for the term hereof, granted to the
> favor of the Tenant/Buyer or its designee, in a form
> and manner suitable for public recording; . . .
If a landlord/seller gives a performance mortgage to a tenant/buyer, my understanding is that the tenant/buyer now has security on an agreement with the landlord/seller (whatever type of agreement). And that if the landlord/seller causes a lien to be attached or tries to further encumber the property, those liens/encumberances will be junior to the tenant/buyers recorded “performance” mortgage. So the position of the tenant buyer is pretty good, assuming s/he has access to funds to either start a foreclosure proceeding if necessary, or pay off the senior encumberances in the event they are the ones to start a foreclosure action.
But what are the benefits of the landlord/seller? I can think of none beside the fact that it might be the only way to get a deal done and the property “eventually” sold (maybe . . .).
It seems to me that a landlord seller would have to be the MOST motivated of motivated sellers to agree to a performance mortgage.
But other than that, I can’t see any benefits for the landlord/seller to do this. Can you shed some light?
Brad
Re: “NON-RECOURSE” . . . - Posted by JPiper
Posted by JPiper on February 21, 2000 at 10:33:08:
Brad:
I think there is a misunderstanding here.
In the case of a performance mortgage, the tenant/buyer is the mortgagee, the landlord is the mortgagor. When the clause says ?granted to the favor of the tenant/buyer? this simply says that the landlord is granting a mortgage to the tenant/buyer.
Let?s put this all on terms you?re familiar with. Let?s say that you have given a mortgage to the bank. When is the last time you think anyone was concerned with the bank trashing the house, or the bank doing anything? The obligation of a mortgage is squarely on the mortgagor?.not the mortgagee.
The issue of recourse arises because in some states the mortgagee (in this case the tenant/buyer) would have the right to obtain a deficiency judgment in the event of a foreclosure IF the property were taken back through the foreclosure action and then resold at a loss relative to the mortgage amount. I can think of no case where there would be an issue of recourse stemming from any liability from the mortgagee (tenant/buyer) to the mortgagor (landlord) in a mortgage document?.just as there is no issue of recourse from the lender to the borrower.
Damages on the part of the tenant/buyer or lack of payment have their solution in an eviction court.
Recourse also arises when and if the mortgage is assigned by the mortgagee to a third party. (The mortgagor can?t assign). I?m doubtful that this is what this clause refers to?.but in any case this is an issue unrelated to the points that you bring up. It refers to the possibility that you would assign the mortgage to this third party, the mortgagor (landlord) defaults, and the third party then has recourse to the original mortgagee (tenant/buyer).
Are there benefits in the performance mortgage to the landlord? Not exactly?.but lets just say that without it the tenant/buyer in effect has little or no security in the agreement, depending on the other elements of the agreement. Wouldn?t that be sufficient reason to execute the agreement? Why would the landlord have a problem with this? What would protect the tenant/buyer if a judgment were recorded? What would protect the tenant/buyer if the landlord decided to overencumber the property? What would happen if the landlord simply refused to perform upon exercise of the option? I think the point of a performance mortgage is to insure that some of the possible negative actions of the landlord, if they occur, provide a means to the tenant/buyer of protecting himself. If the landlord takes none of these actions then the performance mortgage doesn?t come into play.
The possible negatives to recording such a document are that if the landlord wanted to refinance he couldn?t. Can you think of a solution to that? I gave it in a post below. Another negative might be that the tenant/buyer would default?.in which case this performance mortgage now clouds the title subsequent to an eviction proceeding. Is there a solution? I gave that below as well. What other negative consequences are there to the landlord? If you come up with one, I suspect it can be addressed.
JPiper