Archive for July, 2008
Owner Financed Properties Gaining Popularity as Freddie and Fannie Face the Fire
July 8th, 2008 categories: Land Trusts, Seller Financing
“Will the seller take 5% down?” the agent asked me. “FHA is the only possible thing out there right now for my first time home buyer, but if your seller can match it, then we should be able to write an offer.” This kind of conversation will become increasingly common as the credit crisis plays out and buyers and sellers look for other ways of putting and keeping real estate transactions together.
Go read this article by CNN Money regarding Fannie and Freddie:
“Fannie Mae and Freddie Mac are government sponsored entities that help the mortgage market function by purchasing pools of loans and packaging them into securities.
Fannie Mae has reported a loss for the past two quarters while Freddie Mac has posted three consecutive quarterly losses. Both companies are expected to report a loss in the second quarter as well.
According to a report from Lehman Brothers analyst Bruce Harting, it would be “extremely challenging” for either company to come up with so much cash to meet new minimum capital requirements, causing already timid investors to be concerned. He added that a “severely undercapitalized” Fannie and Freddie “could possibly topple the already fragile markets.”
A study by Bridgewater Associates, one of the world’s biggest hedge funds, estimates that total credit crisis losses will amount to $1.6 trillion worldwide, and we’ve only lost $400 billion so far . . . so the global financial crisis might only be 25% complete? Wowee . . .
“Yes, we’re ready to consider a 5% down,” I answered, “but we’ll have to structure the transaction in a way that adds some extra protection for the seller.”
In the standard seller carry back world, a 10% down payment is considered minimum, with 20% or more being preferable. If a buyer puts down that much hard equity, then it’s considered a pretty good note, and a note buyer will offer a higher price for it. Anything less than 10% and you seriously compromise the value of the note, or your ability to sell it at all.
So why would any seller consider taking a 5% down payment? Because:
- that may be the only way to sell without a drastic price reduction
- the seller needs out from under their mortgage payment
- we can close quickly
- there are more potential buyers if there is a low down payment requirement and there are no loan origination fees
- we can structure this deal using a land trust so that the underlying financing can stay in place without risking a “due on sale” violation, and upon any default, the seller can regain possession of the property in 60 days rather than the 120+ it would take if foreclosure were necessary. This reduces the risk of accepting a low down payment.
If we can’t count on the institutional lending community while they work out their issues, secure government bailouts, etc., then buyers, sellers and the real estate professionals who serve them need to become proficient at other ways of closing real estate transactions.
- If you’re a seller wondering if you are able to offer seller financing on your property, email me
- To talk about buying a home without bank qualifying, call me!
Related Reading:
- What You Don’t Know About Notes Can Cost You Listings, Sales and Closed Escrows!
- Seller Financing and Land Trusts - Secrets of Liquidity After PTSD in the Real Estate Marketplace
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The Ten Commandments of Private, Hard Money or Seller Carry Back Lending
July 5th, 2008 categories: Note Holder Tips, Seller Financing
These 10 spiritual principals were received by James M. Allen in 1993 on top of Mt. La Jolla, California. Originally created
for the edification of private hard money lenders, the principles largely apply to any seller thinking of becoming the bank on their own property:
1. ALWAYS take possession of the original note.
2. ALWAYS make sure that the deed of trust is recorded.
3. ALWAYS make sure that you have title insurance showing your deed of trust in the proper priority.
4. ALWAYS make sure that you record a “Request for Special Notice” with respect to all senior deeds of trust at the time you make the loan, and promptly when your address changes.
5. ALWAYS personally inspect the property which is security for your deed of trust. Would you like to own this property in this neighborhood?
6. NEVER lend money on a deed of trust where you cannot afford to keep prior payments current while you foreclose your own deed of trust.
7. ALWAYS insist that the note and deed of trust show you as the original beneficiary on a new loan, not the broker who arranges the loan.
8. ALWAYS make sure that the note is assigned by separate assignment on the note or permanently attached to the note, and by recorded Assignment of the deed of trust when you are buying a “seasoned” note.
9. ALWAYS keep your original notes and deeds of trust in safe deposit boxes, or in similarly secure environments. You can keep copies in your files for working reference.
10. ALWAYS make sure the property taxes are paid current, that prior deeds of trust are kept current, and that hazard insurance is adequate, in force, and premiums are paid current.
My friend, I testify that if you will heed these principles, and your attitude improves greatly, you will one day enter Seller Financing Heaven. Hallelujah and Amen.
Related Reading:
- Please help me create a good real estate note
- If I Carry, How Will Capital Gains Work?
- I Want to Sell my Note
- I’m Going to Provide Seller Financing, How Do I Create a Good Note?
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Seller Financing: Coming Back Around
July 4th, 2008 categories: Real Estate News, Seller Financing
I was recently speaking with the managing editor of Inman News, exploring the possibility of becoming a columnist for them around the topic of seller financing and real estate notes as I believe the message to be very apropos. Creative financing is coming back around. Why not educate people about how to use these strategies safely?
Not only have many buyers and sellers begun to express excitement about the information I am providing, but I have been contacted by several real estate professionals that are getting on board, as well.
Because I was curious about how often the LA Times had published articles talking about Seller Financing, I dug around in the archives at LATimes.com. Here are a few that popped up on my initial search:
Jun 5, 1988 - Home Buying Creativity Can Bridge Lack of Cash Series: Last of four articles on bridging the affordability gap - DAVID W. MYERS
May 21, 1989 - Getting In: A special report on how to buy a first home in today’s tight real estate market: How First-Time Buyers Can Get Their Piece of the Dream - DAVID W. MYERS
May 21 1989 - House Not Beyond Reach of Most - ROBERT J. BRUSS
Jun 25, 1989 - There Are Some Tricks to Finding and Buying Seller-Financed Homes - ROBERT J. BRUSS
Apr 15, 1990 - Home Seller Can Be Good Source of Financing Second Mortgages: With the market slowdown, more sellers are offering to carry back loans to help buyers consummate the deal. - DAVID W. MYERS
Jun 24,1990 - Seller Financing: Panacea in Slow Market Mortgage: Both buyer and seller benefit from this type of financing. To secure it, buyer should include this condition in the purchase offer. - ROBERT J. BRUSS
Jun 24,1990 - Five Basic Ways to Get Financing for the Purchase of Real Estate - ROBERT J. BRUSS
Dec 8, 1991 - Carry Backs Offer Buyer, Seller Benefit - DAVID W. MYERS
Mar 6, 1994 - High Risks Involved in Owner Financing - HOME EDITION
Oct 16, 1994 - Q&A: Real Answers. Buyers who don’t have 20% to put down on a home often are attracted by seller financing. - HOME EDITION
Dec 3 1995 - Your Mortgage; Creative Financing Can Benefit Both Home Buyers and Sellers - DIAN HYMER
Oct 8, 2000 - Real Estate Q&A: What It Means When the Seller “Carries Back a Second” - ROBERT J. BRUSS
Sep 9, 2001 - Your Mortgage; Don’t Hesitate to Ask for Seller Financing - ROBERT J. BRUSS
May 21, 2006 - Old loan, new interest; Driven by capital-gains rules and soaring home appreciation, the appeal is growing for ‘owner-carry’ mortgages - JESSICA C. LEE
Jul 22, 2007 - Housing Scene; Safeguards are key when seller assumes the role of lender - LEW SICHELMAN
Seventy-five percent (75%) of the articles were published between 1988 and 1995, which corresponds with the last down cycle in the real estate market. Now, we’re starting to see them emerge again, and for good reason. The real estate market is in dire need of creative financing strategies.
Buyers need to know how to buy, sellers need to know how to sell, and everyone needs to understand the associated risks and rewards and how to set up the transactions properly.
Related Reading:
- Five Ways to Make Seller Financing Work for You, part I
- Five Ways to Make Seller Financing Work for You, part II
- Easy Cash Flow for Retirement by Carrying Paper
- Financial Storms Offer Advantages to Sellers Willing to Carry Paper
- Become the Bank on Your Own Property!
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