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Note Pro Rides White Steed Into Pasadena Escrow – Seller Financing Saves the Day

This is the time for note professionals to shine. Our expertise can make a meaningful contribution to the economy.

I got an email from Kay, who found me as a result of an Investor’s Business Daily interview: Seller Financing Can Seal the Deal in Rough Market. She was thrilled, and so was I, that we only lived 5 miles apart. (It’s always fun when you get to work with people in your own back yard).

She and her husband had an escrow that was falling apart, and they asked me to step in and put it back together. If this deal didn’t close, then they would most likely lose at least another $50,000 on this southbound investment.

Here’s the scoop:

A British buyer had originally made an all cash offer on a $764,000 home. He put down a non-refundable deposit of $24,000, and was willing to walk away from it when the pound dropped substantially against the dollar, virtually overnight.

For him to liquidate enough of his own currency to complete the deal right now would effectively make his purchase price $900,000, and that didn’t mix well with his Earl Grey.

The sellers and I weighed the wrap (AITD) against subject-to and land trust transfer: seller financing on steroids – a technique to prevent the bank from being able to ‘call’ the note on any underlying financing left in place.

Here’s how the sellers made the transaction more palatable for the buyer and created a win-win-win-win-win (2 principals, 2 real estate agents, and 1 note pro):

Buyer made a $194,400 down payment, and took the property subject-to the sellers’ interest-only loan: principal balance $569,600, fixed at 7.25%. By George! Now he could put his focus back on the Breeder’s Cup!

As it becomes economically attractive for him to do so, he will liquidate pounds for dollars and pay off the underlying financing.

(After the holidays, won’t we all wish we could liquidate pounds for dollars?!)

I would have preferred that we had done a wrap (even if the interest rate was at par with the underlying financing). While both strategies are equally underwritten, the wrap would have given the sellers the right to foreclose in the unlikely event that the buyer quits making his monthly payments. Not that they would be willing to soak more money into the investment, but they would have retained more control.

The land trust transfer would have been watertight against potential loan acceleration, but the buyer’s financial strength made it an acceptable risk, so we elected not to try and educate everyone about this particular strategy.

Seller financing saved this Pasadena escrow and made everyone very happy: sellers got to sell, buyers got to buy, and agents made commissions. Now isn’t that some lovely jubbly!

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