Would you carry a note when selling your house?

Vipergrün · 03-12-2018, 09:45 PM

Got an interesting situation. Selling the house and have a buyer offering full ask, 70% LTV as a first mortgage, which he'd finance and wants me to carry the remaining 30% for 2 years at 6% and a balloon payment.

Having all the cash now would be nice, but making a little extra would be nice as well.

I'd have an iron clad contract entered into escrow.

Would you do this?

Thanks for your thoughts!

john70t · 03-12-2018, 10:09 PM

I'd talk to Sal (and Guido) first about FSBO,
whether there are special registrations/restrictions/other required to be a private lender in CA,
Which direction the tenancy laws swing (yeah he might legally stop paying you for a decade because he got fired for being purple and mom is sick etc),
What order your claim is going to be when he goes bankrupt and there are 20 people in line to sue him,
How collections work and is this guy going to be at all after he turns the house into a giant pool for an underwater pron filming,

Things of that nature...it's not if..it's when things all start going wrong.

pwd72s · 03-12-2018, 10:36 PM

Hmmm. Doesn't look like he'd be pitting much skin in the game. I have sold under contract, but insisted on 20% down.

look 171 · 03-12-2018, 11:21 PM

I think its ok, with a little risk. You get the cash anyway even if it isn't a cash buyer at the close of escrow. Wait for another buyer? How long has the house been on the market? I would wait.

KFC911 · 03-13-2018, 12:26 AM

Due dilligence, but I'd do that if felt right. I think I'd want the buyer to have some $ in, just because...even a token 5%.

drcoastline · 04:13 AM

There is not nearly enough information to make the decision.

First there is no such thing as ironclad. You will be holding a note with a mortgage. You will be subject to all the laws as any lender and will be required to foreclose according to law.

To start what kind of figures are we talking about? What is the buyers credit score? What is buyers debt ratio? What happens in two years when the note is due and balloons? Especially if he cannot refi the balloon amount? Are you willing to hold the balance for an additional time frame? Are you prepared to accept a lower interest rate and an extended time if he defaults? What are the terms of the second? is it based on a thirty year term with a two year balloon P&I or just interest? Are values going up, down or holding in your area? What does your financial picture look like? Can you afford the foreclosure battle and/or are you willing to give up part of your 70% to fight in court?

If you are comfortable walking with 70% it may be worth the risk. You will be in a second position as a lender. If he defaults on you alone it will be very costly for you to foreclose/collect.

DanielDudley · 03-13-2018, 01:35 AM

No. I don't see your leverage. And why ? If a bank won't give the last 30% neither should you.

cabmandone · cabmandone's Garage

No way. As a second you'll subordinate to the first and if things go south you lose. 6% isn't enough IMO to take that risk.

LEAKYSEALS951 · 03-13-2018, 03:00 AM

Walk away. I've done this. Not a pretty site when thing go south.
Even with a quit claim deed and legal recourse to get the house back when things go south, it is a complete mess.

You will be funding an illusion.

OldSpool87 · 03-13-2018, 03:04 AM

Your proposed note could put him in default with his first mortgage holder. Terms of seconds must typically be disclosed and approved by first lien holder. Not sure what his intentions look like on disclosure, recording (a must for you), etc.

ckelly78z · 03-13-2018, 03:38 AM

I suspect that he is telling the 1st LTV Bank that he has 30% down, not mentioning that he has a 2nd with you. This sounds deceitful on his part, risky on your part, and illegal on the bank's part.

berettafan · 03-13-2018, 04:31 AM

ckelly is righto.

tell him you'll do the deal on one condition:

5% additional in cash (on top of the full price offer) and your 30% gets filed before the banks 70%.

THIS is a deal I might consider living with.

The bank however, will not.

That is your clue that you should not do the deal.

drcoastline · 04:48 AM

Quote:

Originally Posted by berettafan

ckelly is righto.

tell him you'll do the deal on one condition:

5% additional in cash (on top of the full price offer) and your 30% gets filed before the banks 70%.

THIS is a deal I might consider living with.

The bank however, will not.

That is your clue that you should not do the deal.

5% of what figure? 5% of $100,000.00 is very different than 5% of $1,000,000.00. The bank will never take a 70% second. Again, not enough information at this time but Vipergrun could take first position at 70% of value @ 8-10% or more interest only for a length of time then balloon. Buyer could get a 30% second or a higher percentage taking the first down. Puts Vipergrun in a much better position. But again much more information needs to be obtained first.

Also need to know if this is a primary or investment property?

greglepore · 03-13-2018, 04:49 AM

I'd have to involve bank fraud, no bank is going to allow this sort of a deal if they know. I suppose he's telling the bank that the 30% is his and then getting it back from you. This a a potential crime...

Dr Coastline is right, flipping it around is much safer.

drcoastline · 03-13-2018, 05:01 AM

Quote:

Originally Posted by greglepore

I'd have to involve bank fraud, no bank is going to allow this sort of a deal if they know. I suppose he's telling the bank that the 30% is his and then getting it back from you. This a a potential crime...

Dr Coastline is right, flipping it around is much safer.

I don't think I would ever put myself in a 30% second for any real money. But if Vipergrun was so inclined he could require a signed notification form the bank they are aware of the second and it's terms. I still don't see a bank accepting those terms though. Even from a first position very risky.

berettafan · 03-13-2018, 05:11 AM

5% of sale price to compensate for risk. Sale price is irrelevant. It's just as reasonable as what the buyer offered so why not propose it?

I know the bank will never take a 70% second, and in fact said as much.

The house is overpriced. If it were not OP would have received an offer of full payment.

6% to play in the financial gutter? OP can't find a way to make 6% elsewhere? it's a suckers bet and doesn't even pretend to compensate OP for an enormous risk.

stomachmonkey · 03-13-2018, 05:20 AM

No

drcoastline · 03-13-2018, 05:30 AM

Quote:

Originally Posted by berettafan

5% of sale price to compensate for risk. Sale price is irrelevant. It's just as reasonable as what the buyer offered so why not propose it?

I know the bank will never take a 70% second, and in fact said as much.

The house is overpriced. If it were not OP would have received an offer of full payment.

6% to play in the financial gutter? OP can't find a way to make 6% elsewhere? it's a suckers bet and doesn't even pretend to compensate OP for an enormous risk.

Agreed you did say as much about the 70% second. Sale price isn't irrelevant and still way to much info to be obtained to make a decision. First is OP's financial position. He may be able to absorb the 5% loss on a $100,000.00 deal but not $50K on a $1M deal. So price is very relevant.

How do you know the house is over priced? You don't know the price, the market, length of time on the market. No way to tell from the original post. For all you know house is undervalued potential buyer sees a deal and makes what looks like to an unknowing seller a full price and earn some interest. House may have been on the market one day and this is the first offer by a savvy investor trying to grab it.

craigster59 · craigster59's Garage

30% on a house in Newbury Park is some serious coin to gamble with. I would wait for a better offer. Home sales pick up in the spring and summer, the right buyer will come along.

drcoastline · 06:17 AM

From Zillow as of January 31, 2018.

The median home value in Newbury Park is $693,400. Newbury Park home values have gone up 4.0% over the past year and Zillow predicts they will rise 2.1% within the next year. The median price of homes currently listed in Newbury Park is $775,000 while the median price of homes that sold is $689,000. The median rent price in Newbury Park is $3,100.

So based on median value of $693,400.00 30% is $208,020.00. Knowing nothing else and assuming I had no mortgage that needed to be paid off. IF, and I probably wouldn't went forward I would take a first at 70% and charge 10%+ interest. Max term five years, interest only with a balloon. Have the buyer get a second for the $208,020.00. Bank the $208,000.00 plus the interest ($242,690.00 after five years @10%) in the event I needed to foreclose to get my house back. But again knowing nothing else I probably wouldn't do it. Let him borrow the money against some other asset. You are not in the banking business leave it to the professionals.