John made a great point that needs to be addressed…Subordiation.
“It might be possible to ask the present holder of the 2nd to extend a fresh 2nd after a refi of the first.”
Nearly every lender I work with REQUIRES that the seller 2nd be subordinated. You may be able to get an exception based on the size of the second, but as John pointed out lenders generally don’t grant this exception.
The seller should re-subordinate their second without being paid off, but that is largely dependent on your skills as a negotiator and the note holders disposition.
Is it possible to get a lender to just refinance a 1st hard money loan and leave the subordinate low interest 2nd there?
Say you were paying 13% on the hard money, lenders interest rate is 8% subordinate 2nd seller carry back is 5%. It would make sense to keep the 2nd lower rate, wouldn’t it?
Tom PA
Re: refi 1st hard money but not 2nd subordinate - Posted by Brian (UT)
Posted by Brian (UT) on October 28, 2005 at 11:41:26:
Tom
Makes perfect sense, but if I were the second holder It would only make sense if the principle on the new first remains the same, and if your saving 5% interest on the note I would like a adjustment on my note for staying in second place, and if your refinancing to pull out money then my terms are definitely not going to stay the same for remaining in second place without some adjustments. However your seller may not be that sophisticated about financing.
Re: refi 1st hard money but not 2nd subordinate - Posted by John Corey
Posted by John Corey on October 29, 2005 at 09:38:58:
Patrick,
Be a little less quick with the advice on keeping the present second.
When a loan is paid off (the first in this example) the other liens (loans and otherwise) immediately slide up 1 position. In this example the 2nd becomes the new first.
So, the only way to keep the second is for that loan to have a subordination clause. I doubt it has that as few loans will ever have this by default. It is not in the lender’s best interest generally.
It might be possible to ask the present holder of the 2nd to extend a fresh 2nd after a refi of the first. As someone else pointed out their will likely have to be paid something to motivate them to do this. Otherwise the 2nd will sit tight as it is likely they will just get paid off when a new 1st is put in place.