Seeking suggestions - Posted by Nathan

Posted by JPiper on October 31, 2000 at 08:07:06:

Frankly I don’t know. The purpose of the note was to give the seller a way to get the property back under certain conditions. But that sounds like a very good reason to create the second for a very small amount. Mine have generally been a few thousand…not $25K.


Seeking suggestions - Posted by Nathan

Posted by Nathan on October 30, 2000 at 17:39:22:

I have a seller that will sell me their house subject to. They understand the agreement and are willing. The house is pristine. They have moved out of state and can no longer afford the payments and their Realtor didn"t produce a buyer. They called me and want to do the deal.

They are concerned a bit about their credit but will still agreee to the subject to deal with them remaining on the loan. They have requested that I enter a clause in the contract that allows them to foreclose in the event that I don’t pay. With this house I really don’t have a problem doing that, It does have great potential and is in a great neighborhood and people want to live there. Anyway, my question is would I put this on an attached addendum or add a paragraph with the verbage? Also how should I word it? Like I said to them, if I couldn’t pay it , I would deed it back to them but they would feel better with it in writing for their peace of mind and security.

Your help is appreciated


Re: Seeking suggestions - Posted by Ginger Harris

Posted by Ginger Harris on October 31, 2000 at 24:03:05:

Every state does not have the same methods. In Oregon the seller might be better off taking a land contract from you because it is easier to foreclose on. If it were here I would use a title and escrow company to draw up any deeds but they won’t draw up land contracts but will only record them. How about asking a lawyer? Ginger Harris

Re: Seeking suggestions - Posted by JPiper

Posted by JPiper on October 30, 2000 at 20:22:10:

Give them a performance mortgage…or as an alternative, give them a second mortgage with no payments or interest. Either instrument is a legal document which can be foreclosed.


Re: Seeking suggestions - Posted by Lynn Hahn

Posted by Lynn Hahn on October 30, 2000 at 18:45:13:

You can either write in on the contract or put an addendum to the contract. This doesn’t really provide much legal protection for the seller, but if it makes them feel better you could put something simple like “If Buyer is in default on ABC Loan company note by more than XXXX days, Buyer agrees to deed the property back to Seller”

By the way “This is not meant to be legal advice!”

Happy Investing!

Re: Seeking suggestions - Posted by David Alexander

Posted by David Alexander on October 31, 2000 at 11:34:55:

If someone offers you the deed, you dont want to go back and offer them a land contract. In the first you have control and in the second you give up some of your options and control of the payment.

A performance mortgage would better accomplish this.

David Alexander

Re: Seeking suggestions - Posted by JohnBoy

Posted by JohnBoy on October 30, 2000 at 22:53:49:

Can see structuring a performance mortgage in a case like this, but how would you structure a second mortgage with no payments or interest? Wouldn’t the second mortgage need to have a dollar amount in it? How would you structure that to where you really never have to pay it? If you put a low dollar amount in it and the seller had to use the second to foreclose, then the buyer would only have to pay that amount off leaving the seller back to square one with no recourse. Can you go into more detail on how to accomplish this properly?

Re: Seeking suggestions - Posted by JPiper

Posted by JPiper on October 31, 2000 at 24:02:34:

The way I have used this in the past is to create the note at a mutually agreed upon amount at a stated interest rate. The note together with the interest would balloon at the maturity of the first mortgage.

Assuming all payments on the first mortgage are paid on time, then the note contains a clause providing for the note to be reconveyed for $10 at either the maturity date or the payoff date, whichever is earlier.

YOu’re correct that the note could simply be paid off. And if you’re concerned about the seller then I suppose you should advise them of this possibility and set an amount for the note that you couldn’t

Personally, I have normally written these notes for very small amounts, such that they could easily be paid off if I chose. I’ve never had a seller question it. They were typically focusing on the purpose of the note rather than some of the other legal intricacies.


Re: Seeking suggestions - Posted by JohnBoy

Posted by JohnBoy on October 31, 2000 at 07:59:14:

Let’s say you created a second for $25k where that reconveys to $10 once the first has been satisfied. Could this create a potential tax issue with the IRS claiming this to be basically the same thing as forgiving the second?

Re: Seeking suggestions - Posted by Jim IL

Posted by Jim IL on October 31, 2000 at 02:44:02:

I have to admit, that is a pretty slick way to handle it.
A little better than me getting the sellers to accept a “quit claim” deed from me, to be “Held in escrow” per the contract, and then leaving it with me. (I must have a dozen of those in MY file cabinet! LOL!)

Whatever the method used, as long as it makes the seller feel better, and more secure, then go for it.
As long as it is legal that is.

Thanks Jim, as always, your posts are full of insight,
Jim IL