Anything I am missing here?
Property taxes and insurance paid up and paid annually.
2.? Aside from going to the courthouse to assure myself that the first is the ONLY encumbrance on this property, what other due diligence should I perform? ?
Close at a title company or equivalent with title insurance. Assure yourself that the equity is there.
?Recognizing that I would be in a second position here, would it be too forward of me to ask the first to notify me if any payment is missed? That way I could make the first and foreclose on the second. ?
You can ask that the first and second be forwarded to a neutral third party for payment so that you know when any payment is late.
?Can I link the second to a missed payment on the first such that if a first payment is missed, that would put the second in default? ?
You can have a clause that says a default in the first is a default of the second.
?If I ran my calculator correctly, a $25,000 note for 5 years at 16% results in a payment to me of about $608 per month. Suggestions on alternatives appreciated.?
You can have most any terms you want. Prepayment penalties, Late fees.
?To put a paperwork package together such that if I needed to sell the note (after 1 year seasoning?), what paperwork would a note investor want? ?
On commercial properties the ITV figure is 70% many times. You could split into a 2nd or 3rd if you need to or be prepared to sell a partial.
You will want a very strong assignment of rents. Should he default make sure the trustee will have no problem having someone collect rents. Verify that the trustee is willing to do this.
Last but not least get a financial statement and get a personal guarantee.
Posted by Soapymac on November 18, 1998 at 14:13:44:
John,
Had this fall into my lap today. A prospective investor purchaser mentioned that he needed $25,000 and was willing to secure it via a combination business/apartment building he owns. He claims there is only a first mortgage on it.
I talked with a mutual friend who has loaned, and has outstanding loans with this individual. The mutual friend stated the investor is current on all his second notes with him. The mutual friend demurred at taking this paper because the mutual friend would have too much of his portfolio placed on this investor.
The investor knows he’s going to pay higher interest than a bank (he distrusts banks) and the mutual friend believes the capacity to pay the note is there.
I have the money he needs, but haven’t committed to anything yet.
Anything I am missing here?
Aside from going to the courthouse to assure myself that the first is the ONLY encumbrance on this property, what other due diligence should I perform?
Recognizing that I would be in a second position here, would it be too forward of me to ask the first to notify me if any payment is missed? That way I could make the first and foreclose on the second.
Can I link the second to a missed payment on the first such that if a first payment is missed, that would put the second in default?
If I ran my calculator correctly, a $25,000 note for 5 years at 16% results in a payment to me of about $608 per month. Suggestions on alternatives appreciated.
To put a paperwork package together such that if I needed to sell the note (after 1 year seasoning?), what paperwork would a note investor want?
Sometimes you walk into smelly stuff…and maybe this is one of those times. Would you help me to come out smelling like a rose?
Posted by John Behle on November 18, 1998 at 23:32:36:
Title insurance.
Credit report. I know you said a mutual friend recommended him, but many times when I’ve heard the line “I have too much of his/her/their paper in my portfolio” it has meant that they are leary or know something that’s going on.
What is your LTV? That is crucial. Also what is the ratio between your note and the first. I.E. first of 70k, second of 10k - ratio equals 7:1
Can you ride that first if they stopped payments. In a second position, you may need to make payments on the first as you foreclose - or at least beat them to the punch in case of default.
Would you buy the property under the same terms? Can you sell the property and at least recoup your investment if you had to foreclose?
Absolutely close through a title company and ask them to prepare the paperwork and handle funds. In their P.R. they will also check the owner for judgements and the property for liens.
Since this is an income property, make sure you have an “assignment of rents” clause. They usually have a short form and a long form note. The long form is where this clause is found. It gives you the right to take control of the rents if they are in default. Usually you have to get an order from the court to do this while the foreclosure is pending.
Even though you know the people, check them out no differently then you would anyone else. Check these items then get back to me with the results.