Paul:
The “fannie mae” mortgage instrument is a good security instrument however it does not allow you to record this as a “wrap around” mortgage unless you have a special addendum prepared. It might be best to have a competent attorney simply prepare a wrap around mortgage instrument for you.
As for your proposed structure, I LIKE IT. The 80% +/- starting LTV threshold for that 1st lien makes it attractive for a paper funder. Seasoning the note for a while also helps. Just make sure you can conclusively document the payments collected.
As for your concerns over the underlying debt. Typicaly when we purchase a mortgage from you we would then PAY OFF the underlying debt from the proceeds from the sale of the mortgage. You do not need to pay it off first. I would NOT recommend deeding the property to the buyer without securing your positon somehow otherwise they might be able to encumber the property without you say so.
Selling w/Owner Financing. What to include? - Posted by markTN
Posted by markTN on February 03, 2000 at 10:18:44:
I’m about to sell a property of mine with owner finacnicng. Terms are 60,000 sale, 10% down, 54,000 at 10% interest amortized over 30 yrs. with a balloon in 5 years.
As the owner, my question is what kind of verbage or clauses should I use to protect myself. I will run the credit of the buyers to help safeguard myself and find out where I stand if I want to market the note.
Any suggestions would be helpful and appreciated!! Thank you.
Mark has given you some very good information. It is always good to use one of those standard forms, on legal-sized paper.
However, to assure that you make your note the most marketable, a lot will revolve around the credit of your borrower, as well as other factors. Can your borrower make that balloon in 5 years? Has he/she had a previous foreclosure? Are you “overselling” the property above what it will appraise for in order to give someone the benefit of owner-financing? Was this a rehab property that you acquired for a very low amount, cosmetically fixed up and then resold for an inflated price?
I don’t know the answers to any of these questions. I am hoping to just alert you to the questions that will be asked of you upon your intention to resell the note.
The better your borrower’s credit, the better it is for you in that you probably can sell your 90% 1st mortgage in full. However, if the credit is weaker, the weaker it is, the bigger a 2nd you should structure to carry back, so that you can get the best “value” upon resale of your note.
There’s a lot to review. Please feel free to contact my office for a free report on making owner-financing work. We’ll also be happy to work with you to review the information on your transaction and provide you feedback along the way to assure its best marketability.
Re: Selling w/Owner Financing. What to include? - Posted by Mark-NC
Posted by Mark-NC on February 03, 2000 at 13:32:18:
Mark,
The best thing to use would be a standard Fannie Mae Note. I have one I can e mail you, but you will need legal size paper to print it. It has all the protections a standard note can give you and it is very marketable if you should decide to sell the note.
Your buyers credit, down payment and note rate are going to determine what a note buyer will pay for that note. If the credit is good, the terms you have will be ok… I would bump up the rate a little for a better return. If the credit is not so good I would put together 2 notes. With the first around an 80% LTV max. That way you won’t get wacked so hard if you decide to sell it and you can keep the second. I can give you some more precise details once you have the buyers credit score. Let me know if I can help.
Re: Selling w/Owner Financing. AND A QUESTION??? - Posted by Paul_NY
Posted by Paul_NY on February 03, 2000 at 22:49:03:
Mark,
I’m doing the same thing right now. I got the set up ideas from a how-to article on this site. (Creating a time machine.) Here’s what I’ve prepared:
I charge 12% interest and the buyer wants 15 years.
The first mortgage will be sold after the buyers pay on it for 3 months. After 3 months, it is “seasoned”.
The first mortgage will bring a good price because of the interest rate and the fact that it is 80% of the sales price (it actually ends up less since the notebuyers don’t pay full value for it). Notebuyers feel safer with a stronger equity position.
After reading the other responses, I’m going to change the 1st mtg to a fannie mae form too!
IN MY CASE: I have an underlying mortgage. Should I only record the title and not the mortgage until I sell the note? How is this handled? Does the underlying 1st have to be paid off before I can sell my note?