Contract for deed/Note Buying? - Posted by Leon

Posted by Michael Morrongiello on November 16, 2000 at 11:15:26:

Yes, I would consider doing such a deal , however the parties have to clearly understand that the loan being “wrapped” (the underlying 1st lien) could call their loan due for violation of the DOS clause provision and then seek to accelerate their loan balance.

That will put the buyer in a very tenuous position and may force the wrap mortgage holder to SELL their mortgage off in the attempt to generate enough cash to retire and pay off the 1st lien lender.

SO if you BOTH go into this with the understanding that this may not be a long term way to go, and that IF the 1st lien lender chooses to enforce the DOS, that you may then have to SELL off your Wrap loan. Dislcosure is important but ONLY from the standpoint that the parties are aware of the possibilities here. Disclosure will not compromise the 1st lien lenders rights under the terms and provisions of their mortgage document.

So perhaps you both do the deal with the clear understanding that later on the wrap loan is sold.

Michael Morrongiello

Contract for deed/Note Buying? - Posted by Leon

Posted by Leon on November 12, 2000 at 16:24:05:

This may seem to be a stupid question, but here it goes.

Say I buy this home that I am looking into taking it subject to the first Mortgage. Here are the numbers

FMV 62,000
Mortgage balance 42,000 and change
I am going to give sellers 2K to walk and I take over the Mortgage *(Not Assume)
I will Have 44K plus about 2K in Fix up so 46K max. The 2K fix up I think I can pass on to my buyer.

I already have a buyer for the property that has 3500 to put down.

Here is what I was thinking of as far as terms

Do a 85% first of 52,700 360 term 12% rate
And a 5,800 second 360/60 term at 12%

Since this is going to be a Subject to transaction I need to structure the sale to my buyer right. I plan to sell the first after I season the payments say 6-12 months.

My question is according to the terms above can I do a Contract for deed and sell it? I know that all the other liens have to be paid but what type of paper work is involved? I have a FNMA type mortgage and Note do I use it and not record? I just need some clarification.

You can use a WRAP or a Contract for Deed… - Posted by Michael Morrongiello

Posted by Michael Morrongiello on November 13, 2000 at 18:17:02:

You need to review carefully the terms, conditions, covenants, language of the existing mortgage that encumnbers the property that you are aquiring “subjec to” that financing. If NO (DOS) Due on Sale clause exists, then you may sell to your “retail” buyer and take back a Wrap Around mortgage or (AITD) All inclusive Trust deed. The buyer will pay you each month and then you will continue to make the payments on the underlying debt. However, If there is a stringent (DOS) Due on sale clause or for that matter any DOS clause indicated in the mortgage document then you need to be careful when it comes time for you to do your “exit” and sell this property to the “retail” buyer.

Using an unrecorded LAND CONTRACT or AGREEMENT FOR DEED or some other type of installment sales agreement to SELL the property to the “retail” buyer will enable you to maintain control while still “seasoning” or aging your paper for later resale.

After your Land contract is seasoned anywhere from 1-3 months or more (depending on the payors credit, down payment, employment, etc.) you can then look for liquidity to sell that contract for deed and covert it into CASH out of which you will retire the other debt against the property.

There are a few other tips, tricks, and traps to follow in order to painlessly accomplish this so feel free to contact me if you need assistance

To your success,

Michael Morrongiello

Re: You can use a WRAP or a Contract for Deed… - Posted by Jim

Posted by Jim on November 16, 2000 at 02:23:51:

A quick follow up question to your explination…

If the original note ‘DOES’ have a ‘Due on Sale’ clause and the seller understood, and signed a disclosure statement, and the buyer knew, and understood and signed disclosure statement, that the bank ‘COULD’ call the loan due, but still wanted to do the deal, could you structure a transaction accordingly? And would you concider structuring such a transaction?