Imputed interest usually occurs where the seller is trying to jack up the price to get a higher payment and avoid paying taxes on the interest income. A good example is an owner-carry sale on a personal residence where the principal portion of the loan would likely be exempt from gain.
However, there is little chance of this happening in a distress sale (the only time an principal-only loan would happen) since the seller could always argue that he had no other options and thus negotiated the principal-only deal.
Has anybody heard of what Ray como suggests doing. I think it has something to do with buy a house based on what the property would rent for then subtracting PITI and mangagement and whatever is left is what the property is able to pay for the equity that is left with 0%… anyways go to this link and tell me what you think. Sounds good to me… but what do I know… I am still learning here.
The link is http://www.dealmakerscafe.com/articles/como/como0interest.htm
THe reason I ask is because I have a seller that might be willing to carry a 0% note on his equity and me assuming his mortgage.