Seller Financing on Steroids: Developing Trust

January 21st, 2009 categories: Land Trusts, Seller Financing

Def.: Trust - confident expectation of something; hope.

Many luxury residential and commercial sellers don’t have a lot of trust in the real estate market. Recently, as if rattling a sordid skeleton, a local high-end Realtor squeamishly confided, “Nothing’s moving right now.”

Though conventional financing is more attractive than ever, jumbos ($625,500+) are sporting a healthy 7%+ rate, and they’re tougher to get. Many buyers, who could easily afford a high end property, can’t qualify for a jumbo loan . . . stalemate.

Now, while I probably can’t help you with a stale mate if you’re married to one, I can probably figure out how to help you safely close a high end real estate transaction.

But isn’t seller financing risky? What if the buyer quits making the payments?

Trust issues:

How do we trust that the buyer will keep making his payments? If he defaults, it will take us at least 6 months to get the property back, during which a normal 10%-20% down payment cushion would probably evaporate.
How do we trust that the bank won’t accelerate, or ‘call,’ underlying loans? Having to replace a nice 6.75% fixed $1.7 mil loan would represent an unacceptable financial risk and destroy the investment objectives of any buyer.

“The best way to create trust is not to need any.”

Developing trust:

We can put a property into a land trust, with an associated document ‘transfer system.’ Using the land trust transfer system, we achieve two important objectives (which is why I call it Seller Financing on Steroids):

If the ‘buyer’ defaults, we can evict him according to tenant law, instead of having to foreclose = possession of the property in 60 days rather than 6 months, mitigating the risk of a small down payment (small is 10% or less on conventional, 20% or less on jumbo)
We prevent the bank from being able to ‘call’ the loan, as the trust system works within federal Garn - St. Germain guidelines.

Seller financing is a powerful tool that can help us close more transactions, restoring trust in today’s market. With the Trust Transfer System, we can expand seller financing techniques to those situations where there might not be a lot of equity, but there is good underlying financing that can be left in place.

Putting Seller Financing on Steroids is a great way to close more high end real estate transactions . . . trust me!

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