Substitution of Collateral, Refinance? - Posted by David Alexander

Posted by Reif on April 01, 1999 at 06:51:04:

If the ILC hasn’t been recorded, there shouldn’t be any problems with subordination - right?

But I understand the other. If you have to get your buyer to subordinate, make his $50,000 note to you $48,000 and you haven’t lost much as long as the monthly payments stay the same.


Substitution of Collateral, Refinance? - Posted by David Alexander

Posted by David Alexander on March 30, 1999 at 14:24:59:

Ok, here goes, Have a property where I think I can get the seller let me substitute collateral to another property, especially if I offer 10k or so cash of their principal.
Mind you all my properties are all ready sold on contract for deeds, it says in my contracts that I can refinance the underlying, but do I need to inform my buyer that I’m doing
this. Refinancing underneath him that is? Also, to pull this off I’m bringing in a partner with A++ Credit not cash to do the refi, what would you do to make it fair for the partner, etc. The cash flow after the refi will be about, 150 month. The excess cash pulled out afterwards will be about 8k.

David Alexander

Simple or Complex - both work - Posted by John Behle

Posted by John Behle on March 31, 1999 at 13:48:55:

The simplest way would be just to use the other notes as collateral. Nothing has bo be changed except the collateral used by the note with this seller that is open to substitution. You wouldn’t need to involve the other “payors” in any way.

The drawback can be that the note holder is going from"

  1. A note secured by real estate …to…
  2. A note secured by a note secured by real estate.

Sometimes they have a problem making the connection of their direct bottom line security still being real estate and that is a negotiation high point, but easy to deal with - you just have to know to hit it direct, head on.

The more complex way as far as costs, people and negotiation challenges is how you described, but it can work. It can also work in stages. I would suggest doing what I described above and then still moving on to stage two to pick up extra profit buy doing some convention “refinance - rewrap” deals on the existing paper. Lower the rates, pull out cash and make a deal the payor would be foolish to refuse.

I love paper.

Re: Substitution of Collateral, Refinance? - Posted by Reif

Posted by Reif on March 31, 1999 at 01:34:46:


I just asked Bill Bronchick this the other day and he said you can refi underneath your buyer on a contract.

Do you have to tell him? Different question. I would say not normally, but in CA you have to tell the buyer if the underlying is more than he owes the seller.

As far as your partner goes, you’re more experienced in this stuff than me - negotiate! What’s he want?


Title challenge - Posted by John Behle

Posted by John Behle on March 31, 1999 at 13:58:32:

Yes, you can refinance and technically in some contracts, etc. don’t need their permission. but, what you “can” do and what you “CAN” do can be different at times. Make sense?

You may have the right to refinance, but as far as the title goes, you may not get a lender or title company to comply without the cooperation of the payor and a “Subordination Agreement” signed. So, you will need their cooperation and need to throw some benefits their way like a lower rate or a trip to Hawaii or whatever. The cheapest thing to give them as an “enticement” always involves the time value of money. You could leave a trail of ten dollar bills to the title company today or you could give them thousands of dollar credit - on the back of their loan - that only costs you pennies or a few dollars in “present value” today.

The advantages of understanding the time value of money are incredible in real estate or paper investment. If I had one thing I would not want to be without in life, it would be my knowledge of the time value of money.

OK, not exactly the “one thing”, but close to the top.