Creative Seller Terms

LET'S TAKE A TYPICAL $100K HOUSE. SELLER OWES $50K. YOU MIGHT.............

1. Assume underlying ...Seller carry back $50k second deed of trust or unsecured note.
2.  New loan for $70K...Seller carry back second for $30K...notice the low loan to value for the lender in first position.
3.  New $100K wrap loan. Pay to escrow on the whole $100k and escrow pays the $50k underlying out of payment. ..Balance goes to seller.
4. Seller refi 80% LTV (Loan to Value) ...Payoff the $50K ...Seller gets $30k net from refi...You assume $80K...Seller carries note in second position for $20K plus fees to refi ...Say $22K.
5. Give seller $60K down, with note for $40K secured by a second position equity in another piece of real estate. Get a 75% LTV loan on subject property ....Out of this $75K pay off the 60K down and walk out of escrow with $15K in your pocket.
6. Get a construction loan based on the future value of subject property ....fixed up say it is worth $130K....borrow 75% and have seller carry back second DOT for one year...$25K on note...The cost of loan is or $97,500. But they give $75K at ·closing. Use $12,500 to fix up the house out of the $22,500 available to do so ...Put $10K in your pocket out of the "pull-out" of the cost breakdown ...cost loan. When job is done...refi the property based on its new value for 90% LTV... ($l17, 000.) Payoff the $97500.construction loan ...payoff the note for $25K with the seller and you still have $4500 left over from the pull-out of the cost loan. Not bad, huh? A new house and $4500.00.
7. Offer $105K for property on a wrap (all inclusive trust deed) with terms of 8% per annum with a cash out in 10 years.
8. Substitute what the seller needs in trade for the down payment.
9. Assume $50K seller carry. back, $30K on a third deed of trust. Open second position for a ·second mortgage to go to a lender and borrow the $20K to give to the seller as down payment.
10. Does 'the seller really want to sell or do they just need some capital and their equity is their only source? What about a life estate?
11. Offer all cash at a discounted price contingent upon the underlying discounting for cash as well. Then get a new 80% loan to value loan to cash out all involved.
12. Bring in a financial partner to put up the down payment in trade for a favorable return on his investment.
13.  Bring in a financial partner to share in the equity of the subject property.

Options are another great way to keep an offer open.

A FEW BASIC MECHANICS

•  Offer earnest money with a note due at closing whenever possible
•  And or Assigns always as the buyer
• An understanding of Subordination agreements
• An understanding of Substitution of Security
•  An understanding of how to handcraft your cash flow into the offer.
• Remember that the first years of property ownership are the most crucial cash flow years.

Happy Investing!

Seller Financing Tutorial

Seller financing is the term used when the owner finances the purchase of his home for the buyer. In a seller financed home, the seller accepts the role of the traditional lender.

The seller can finance the entire mortgage if his personal economic situation allows for such a large loan. Or, he can lend the difference between the buyer's approved mortgage amount and the price of his home.

The buyer will repay the owner with monthly mortgage payments that include interest. Typically an owner financed mortgage is repaid in full within a period of a few years on the assumption that the buyer will be able to refinance the home with a traditional mortgage at that time.


But as with all other terms in real estate, everything is negotiable, including when and how to repay the loan.

Here are a few special clauses that are also subject to negotiation between a buyer and seller:

· “As Is” and Inspections

· Closing Date

· Recourse Against Buyer (or  not!)

· Right to Assign

I usually like to include a phrase in promissory notes that I write to an owner on a seller-financed mortgage that:

"Maker of note has the right to purchase note should Beneficiary elect to sell note."

This basically gives me the right to negotiate a purchase, and potentially a discount, when the Beneficiary (original Seller) needs to cash out sooner.

Happy Investing!

Promissory Note and Terms

Promissory Notes Tutorial
Some simple term definitions will help you approach the use of promissory notes with confidence, and at least the illusion of expertise. First, the maker or payer of the note is the borrower who executes the note. The payee is the lender. Both payer and payee must sign the note before it can be legally executed.
The promissory note will set forth the loan amount and terms, interest rate, method and timing of repayment as well as the payer’s promise to repay. With a deed of trust, the note may state that it is payable to the bearer. If used with a mortgage, the note may state that it is payable to the mortgagee. The mortgagee is the person who holds the mortgaged property as collateral for the loan. Other items stated in both those documents may be restated in the promissory note including charges or conditions for late payment and default, as well as notifications and cures for default. Specifics on the right to prepay the loan balance and also any other charges the payee may receive should be spelled out as well on the promissory note.
As in other negotiable instruments, the promissory note may be assigned to a third party who then has the right to the borrower’s periodic payments. In other words, a note may be sold to another party.