Archive for November, 2008
If I Use an Equity Holding Land Trust Can I Still Create and Sell Notes?
November 11th, 2008 categories: Land Trusts, Selling Your Note
Aloha Dawn,
Hope everything is going well for you. I was out yesterday educating Realtors at open houses on non traditional financing, ie Land Trusts. They all seem to recognize that things are different and were open to pursuing the EHLT approach. A couple questions came up and I thought I’d ask you your thoughts on them.
Q: Assuming a $1.2M MAV with an underlying $250,000 mortgage. RB comes in with lets say $100,000 and seller agrees to carry $1.1M at 6.5%. Would it be possible to take the difference between the remaining equity of $850,000 ($1.2M – $100,000 =$1.1M – $250,000 underlying) and divide it into two notes of $425,000 each at 6.5% and then sell one of the notes at some small discount (I don’t know how much it would have to be discounted) so the seller gets more cash up front? If you did it this way I assume that the new Note Holder would then have to be a beneficiary of the trust to secure his interest?? Can I mix Notes and Land Trusts in this manner or ???
A: Tough to mix seller carry back notes and land trusts . . . you need to choose one or the other. In the above situation, why put the thing in a trust if you can sell a 1st TD to pay off the underlying financing and create more cash at closing for the seller? Create a relatively small 1st (and sell it), and a large 2nd. Then the seller has:
- down payment
- mortgage paid off with a little extra to boot
- a stream of income from a 2nd deed of trust
It is very important that you put the deal together properly and underwrite the buyer so seller has optimal results when holding or selling the notes.
Q: Can we use a local escrow company to hold the funds, do a pre-liminary title search, and ultimately disburse the funds to the Trustee?
A: In my experience, it’s harder than you’d imagine to find an escrow company that is comfortable closing these types of transactions. They get hung up on the fact that there is no 1099 being issued at closing, among other things. Additionally, I like using an escrow that has processed many of these types of transactions . . . sometimes they catch things a less experienced company might miss.
Best wishes . . . looking forward to helping you put some of these transactions together.
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Canadians Buy U.S. Real Estate Using Seller Financing (No Bank Loans Needed!)
November 6th, 2008 categories: Land Trusts, Seller Financing
There’s a Canadian buyer I’m working with that has purchased over 30 homes this year alone . . . and he’s never qualified for a single loan. How is he doing it?
He has the sellers carry paper (take back a note, owner finance, etc.)
Seller financing won’t work for short sale or REO properties, but it will potentially work in all other transactions. If the seller has equity, good underlying financing, or some combination of the two, then a foreign buyer can come in and easily buy the property without the hassles and expense of obtaining traditional financing.
It can be such a win-win solution, and I’m seeing more of these all the time. Every day I get emails from people all over the country that are exploring the idea of offering seller financing so they can sell their home for a decent price in today’s market. Because most of these sellers already have some sort of financing in place, many times we’re using the land trust system.
But it’s not always necessary. Sometimes a wrap (AITD) or simultaneous sale of a real estate note will do the trick. For help in putting your seller financing deal together, email me for a quick consultation!
Canadians . . . quit worrying about the difficulties and expense of traditional financing! Seller financing can be the perfect tool for foreign buyers in today’s market.
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Very Scary Halloween Notes: Due on Sale (Santa?) Clauses
November 1st, 2008 categories: Land Trusts, Seller Financing
In honor of Halloween, I was trying to come up with something scary to write about. And then it came to me . . . the acceleration clause. It’s the language that allows a bank to ‘call’ a loan when and if they find out title has been transferred.
Yes . . . the proverbial, mysterious, vengeful, ever-looming, life-throttling, hatchet-in-the-skull, grave-digging due-on-sale clause is definitely a spook many people find threatening. It’s a (Santa) Clause that could turn into a Nightmare Before Christmas for people trying to put deals together with creative seller financing techniques: subject-to, wrap, etc.
I’ve always proposed that there is a relatively small likelihood of a bank calling a loan these days. It just doesn’t make sense for them to foreclose on a performing asset. Aren’t they busy enough foreclosing on properties where they aren’t receiving the payments???
And that’s when I started having some doubts . . .
Since when does common sense have anything to do with how a bank does business these days? They routinely refuse short sales so they can sell for 50% less as an REO down the road. Yup . . . prescribing the lenders with qualities they do not possess (such as common sense) is probably not a great idea.
What if they desperately need to beef up their reserve requirements one month? Might they go digging for loans they can call in to restore some liquidity? I do know people who have had this happen to them.
So, while I still maintain that there is a relatively small chance that a bank will call a loan in today’s climate, if it’s absolutely crucial to the deal that the existing financing be left in place, then I suggest you use a different vehicle for structuring your transaction: the Equity Holding Trust Transfer System.
Brief comedic interlude:
Now, back to our original programming . . .
As scary as the due on sale clause can be, I have to say that there’s something MUCH MORE THREATENING out there!!!
I get a lot more scared looking at the grocery bill needed to sustain four teenagers . . . they’re like locusts. You think you have a field full of grain, or a refrigerator full of food, and whoosh!! They come through in swarms and decimate the food supply.
So, please be very very careful how many of these you will let live in your house, especially with the upward price pressure on commodities these days.
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- Read about some frequently asked questions regarding seller financing
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