Have the Seller make the payments on the 2nd mtg, directly to you. For additional security you could ask for them to pledge a 2nd mtg on their new house…and int he event that they default, the stakes are certainly higher.
Whether they will pledge a 2nd mtg on their new house or not, depends on how motivted they are. However, I would absolutely insist on the pymts on the existing 2nd being made directly to you, end of discussion.
I have a motivated seller in an upscale neighborhood here in Michigan. The seller is building a new home, and needs her permanent financing by the middle of June.
The house is worth $230k.
1st mtg: $180k, 7.5%, $1530/mo including escrows
2nd mtg: $32k, payments are $375 per month.
My offer will be to take the 1st on a Land Contract, and have the seller make the payments on the 2nd. My exit strategy will be to sell on a Land Contract, $249,900 with 10% down, and $224,910 financed at 10% ($2245/mo), for a cash flow of $715 per month.
The only way I think I can get this deal to work is to get the sellers to make the payments on the 2nd mortgage. I’ve heard other investors having success with this. How do I protect myself, and ensure the seller will continue making the payments? The sellers also realize that they are to make the payments (on both loans) until I can find a suitable buyer. How do I write up the documents to reflect these two points? Also, how do I adequately protect myself (mainly in the case of the seller paying the 2nd).
I’d have the seller deed it into a title-holding trust with a corporate trustee and third-party bill paying. Your title company or attorney can write the documents for the first one. It’s not a do-it-yourself project.
The new buyer via land contract will be flawed and will probably have 5% or less to put down on the property. If they were a moderate risk borrower, they could have paid less than 10% down and gotten 7.5% interest on a bank note mortgage.
I agree with JT that it’s a good idea to get a performance mortgage. I’d try for a blanket on both properties.