Archive for the 'Seller Financing' Category
When Right Side Up is Inside Out - Saving a Pasadena Escrow with Seller Financing
October 22nd, 2008 categories: Seller Financing, Waking Up . . . Almost
Answer: “Well, because I can.”
Question: “Why do you write totally random quirky posts sometimes? Don’t you want us to think that you’re a respectable professional?”
It is intuitively understood by most people that anyone who goes by ‘Note Queen’ is likely to be eccentric at times. I don’t actually think anyone is surprised at this point. Besides, as one of my teenagers likes to say, “Mom . . . nobody cares.”
So, I got a call over the weekend from husband & wife sellers who had an escrow that was falling apart. They asked if I would please step in to put it back together. It’s hard to think of being asked to do anything that sounds like more fun.
The sellers arranged a meeting with their listing agent, the selling agent, the buyers (and a token boyfriend, I think) and myself, and we all sorted it out to create a great solution for all concerned.
The buyer is getting to buy, the seller is getting to sell, and both agents are going to get their commissions after all. (Because the escrow is not quite closed, I’ll leave the details of the deal for a future post.)
So I’m feeling pretty cool and sophisticated and relevant at this point.
I follow the listing agent back to his office to help him put the seller financing addendum together and do some minor strategizing about how to move things forward expediently. While I’m standing at his computer, working on Winforms, he comes up behind me and says, “Hey, I think there’s a moth on your back,” and he goes to gently grab what turns out to be the tag on my shirt.
And then I realized aloud, “Oh my God! I put my shirt on inside out!” We both had a good laugh. Folks, there are few better ways to impress your peers.
Just another bit of wisdom from the Note Queen. (Please consider donating to the: Help Dress the Note Queen Foundation).
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What Do You Mean You Don’t Want Seller Financing?
October 21st, 2008 categories: Seller Financing
Once in a while, I really get a head scratcher.
The other day I met with a seller and the buyer he had found for his property. The kitchen still needed to be finished, but they had agreed on a price, and the buyer was willing to take it “as is.”
The problem: the property wouldn’t appraise for the new loan unless the kitchen was finished. So the deal was off . . . or so they thought. That’s when I asked the seller why he wasn’t providing the financing for the buyer so he could get his escrow closed. I can usually find two or three ways to put the deal together without going to a bank.
I knew that the seller had existing financing that looked something like this:
- Loan amt: $360,000
- Interest rate: 5.85% fixed
- Term: 360
- Monthly payment: $2,110.98
Now that’s REALLY attractive underlying financing! Perfect for a ‘wrap.’ If the seller would carry paper for the buyer and leave his financing in place, here’s how it would look:
- Purchase price: $540,000
- Down payment: $100,000 (very nice 19% down)
- Loan amt: $440,000
- Interest rate: 6% (buyer’s credit score is 800)
- Term: 360/due in 10 years
- Monthly payment: $2,625.58
The seller would get $100,000 now, and a positive cash flow of $514.60 per month until the buyer finished the project and got his own financing. Or, if market conditions weren’t favorable for a new loan when the kitchen was finished, he would have the option of keeping the seller carry back loan for up to 10 years.
And why did we make the rate to the buyer only 6% when prevailing bank rates were 6.79%? Usually, sellers who offer financing can justify getting better than the prevailing rate.
When the seller and buyer originally agreed on the price of $540,000, the buyer could have secured a loan at 5.89%. By the time I met with them, rates had jumped almost a point, and that was a deal breaker.
The seller is stuck on price
The buyer is stuck on terms
So the seller gets his price in exchange for giving the buyer below-market terms. Hooray! Problem solved, deal done . . .
Nope.
The buyer, even after several rounds of explanations, decided that seller financing was “just too complicated.” Huh? The only difference is where you send your payment.
He decided he’d rather buy another property where he can
- apply for a bank loan (whose programs and/or conditions could change mid-escrow)
- pay loan points and fees
- pay almost 1% more on his interest rate
- take three times as long to close
- possibly have a prepayment penalty
I know, right???
This is where many will start shouting about the infamous ‘due-on-sale’ clause in defense of our poor buyer. The chances of the bank calling the loan are minimal, and even if the loan was accelerated, the buyer is strong enough to replace a $360,000 loan at will.
And if the threat of the bank calling the loan is just too much for either party, that’s when the Trust Transfer System makes a lot of sense.
- Do you need help putting your deal together?
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If You’re Going to Carry Paper, Read Some Books on Seller Financing
October 16th, 2008 categories: Seller Financing, Selling Your Note
Unfortunately, too many people assume that if there is seller financing involved, there is no underwriting (qualifying) whatsoever . . . that it’s a “free-for-all.” That’s simply not true, unless, of course, you have no idea what you’re doing. <I know - a bit of a stinging remark>
Banks have whole departments dedicated to underwriting (i.e. “making sure this loan makes sense and the reward equals the risk”). Do you remember the stack of loan documents you had to sign when you got your last loan? Don’t you think there might be a reason for that?
When you’re the lender, don’t you want water tight documentation so you can sell for minimum discount 
on the secondary market? How will you feel when you find out that the boiler plate way escrow/title put your seller carry back note together equates into a loss of thousands of dollars when you go to sell your note?
When you’re a seller that is thinking about becoming the lender, then you’d better consider thinking like one. Better yet, hire your own underwriting department. And make sure that ‘department’ knows what’s going on in the secondary trust deed market (AKA the discounted note business).
At the very least, educate yourself by reading up on the subject. There’s a lot to it, especially if you’re thinking that you might want to sell all or part of your first deed of trust or mortgage on the property.
And if you’re an agent, pay attention!
Just in the last several days, I have talked to two separate sellers (both with homes over $1mil) who are planning to fire their real estate agent(s) because they are uncomfortable with, and unknowledgeable about, seller financing.
You’ll want to read: What You Don’t Know About Notes Can Cost You Listings, Sales and Closed Escrows.
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