balloons? & how they work, benefits - Posted by JD Orlando

import · June 18, 2002, 8:03pm

Posted by jd orlando on June 19, 2002 at 15:57:20:

,

import · June 18, 2002, 8:03pm

Posted by JD Orlando on June 18, 2002 at 20:03:04:

OK, I am new to balloons.

If one takes a balloon payment on a second it is essentially an IOU, correct? Seller takes back a “note”?

If this is so, how does one make a “note” and make it legal?

I ask these questions to better understand how this process works. I would further like to discuss how to structure such a deal. Any information and thread that can be started would be greatly appreciated.

Thanks
JD

import · June 18, 2002, 9:16pm

Re: what is a note? - Posted by Nate(DC)

Posted by Nate(DC) on June 18, 2002 at 21:16:54:

A note is written evidence of a debt. I suppose you could think of it being exactly like an IOU. One party writes something saying “I owe you $X and promise to pay it back”, and signs it, and presto, you have a note.

I think your real question is how to create a mortgage or deed of trust to secure that note. If that is your question, the answer is: have an attorney (the same one that’s drafting your note - probably the one who’s doing your closing) draft a mortgage or deed of trust (whichever one your state uses) and have the buyer sign it at the same time they sign your note.

NT

import · June 19, 2002, 5:54am

OK now what? - Posted by JD Orlando

Posted by JD Orlando on June 19, 2002 at 05:54:37:

Thanks I’m understanding a little better, in a sense I create my own mortgage.

So, this is, “owner taking back a second”. Now, lets say that this note is for hypothetically 10k. The seller can make up any terms on this note correct?

What becomes the benefit for the buyer having this note?

It is true that I reap the benefits of making the interst off the note, but does it always have to be a balloon? I assume that most likely it is.

import · June 19, 2002, 10:36am

Re: OK now what? - Posted by Nate(DC)

Posted by Nate(DC) on June 19, 2002 at 10:36:53:

“So, this is, “owner taking back a second”. Now, lets say that this note is for hypothetically 10k. The seller can make up any terms on this note correct?”

Any terms that
A. the buyer will accept and
B. do not violate state law regarding excessive interest

“What becomes the benefit for the buyer having this note?”

In most cases the reason the buyer needs the seller to hold a note is that the buyer has bad credit and cannot qualify for a loan for the necessary amount. Let’s say you’re selling a $100K property. The buyer has $10K down but has bad credit and therefore can only get an 80% LTV loan ($80K). Without your $10K second, the deal cannot happen.

“It is true that I reap the benefits of making the interst off the note, but does it always have to be a balloon?”

No, as you stated above, it can be on any terms that you and the buyer (and the buyer’s lender) agree on.

import · June 19, 2002, 12:31pm

ok got it! but now… - Posted by jd orlando

Posted by jd orlando on June 19, 2002 at 12:31:04:

Who writes this contract? Do a have a lawyer do it? Are there standard contracts I may purchase? I assume it must be notarized too.

Thanks
JD

import · June 19, 2002, 3:20pm

Re: ok got it! but now… - Posted by Nate(DC)

Posted by Nate(DC) on June 19, 2002 at 15:20:30:

Have a lawyer do it. The deed of trust or mortgage will be notarized. The note does not have to be, since it is not recorded.

NT