Posted by Paul in BR on January 08, 2001 at 08:41:55:
Thank you!
Create Your Own Mortgage? - Posted by Paul in BR
Posted by Paul in BR on January 07, 2001 at 17:21:27:
I saw J.P. Vaughn’s article titled “How To Create Your Own Mortgage” at http://www.creonline.com/articl13.htm.
Is there someplace on this site I am missing that tells us how to do this? I have searched everywhere.
Paul
Manufactured Notes! - Posted by David Butler
Posted by David Butler on January 09, 2001 at 15:19:12:
Hello Paul,
We have had a lot of discussion on this subject at length in the Cash Flow Forum that you may find helpful. It is critical to understand the difference between creating an “exempt” seller carryback note for deferring equity payments on the sale of a property - and a “manufactured” note which is technically a loan, and as such, has numerous caveats you need to be aware of. J.P. has made an excellent reply just down below here in that regard…
I would very much suggest that you consider investing $30 in William Broadbents excellent and thorough primer on the subject of note creation, OWNER WILL CARRY. The book does include numerous copies of the various legal forms used in note transactions, pointed legal discussion (particularly related to the ALL IMPORTANT USURY FACTOR), and numerous checklists related to note creation, escrow procedures, note evaluation and more.
In fact, I recommend that every creative real estate investor get schooled in that aspect of the business before he ever tries his first deal - after all, financing is what drives these deals… and the use of notes, whether in the form of “exempt” seller carryback purchase money mortgages, or owner created “manufactured” notes, is a valuable weapon to have in your arsenal - when used judiciously ;-))
You might also gain significant insight to the other side of the table by taking a long look at these two FREE reports related to private real estate notes: NOTE GRADING/PRICING GUIDELINES, at: notenetwork.com - This website is for sale! - notenetwork Resources and Information.
and,
USING DUE DILIGENCE TO CONTROL YOUR DEALS, at:
notenetwork.com - This website is for sale! - notenetwork Resources and Information.
Hope this helps, and Happy note writing!
David P. Butler
Re: Create Your Own Mortgage? - Posted by Ed Garcia
Posted by Ed Garcia on January 07, 2001 at 19:57:50:
Paul,
In J. P. Vaughan’s article, she clearly gives the following example of “How To Create Your Own Mortgage”, In the event you missed it, here it is again.
A Real Life Example
Perhaps the best way to explain how to create your own mortgage is by giving a real-life example of a mortgage we created recently. We purchased a house at a HUD auction for $35,000 and our estimated fix-up costs were $7,000. Therefore, the total amount of money we needed to both purchase and fix-up this property was $42,000. Once fixed up, the house would be worth $90,000.
Our first task in selling all mortgages is to demonstrate an adequate loan-to-value ratio to the investor. The investor wants to make sure there is enough “cushion” in the deal to protect his or her money. As we always do, we provided our investor with all the current comparable sales in the neighborhood, and he agreed the house would be worth $90,000 after it was repaired.
However, he felt the current market value of the house was $69,000. That was fine with us.
By using the investor’s own figure of $69,000, we had a very acceptable loan-to-value ratio (LTV). The formula for calculating LTV is: Loan Amount divided by Market Value. The $45,000 loan amount divided by the $69,000 market value equals 65%. Therefore, the LTV on this mortgage was 65%. A great LTV for a first position mortgage!
We wrote the $45,000 mortgage with an interest rate of 13%. The mortgage called for interest only payments of $487.50 per month. At the close of escrow, we prepaid the first six payments, which equals $2,925. The investor funded only $42,075 because the $2,925 in prepaid interest is subtracted from the mortgage amount. Because of the “time value of money,” this gave the investor a 20.67% yield on his money. At the end of the term (12 months) we would still owe our investor the principal balance of the mortgage, which is $45,000.
This is the classic Win/Win/Win transaction. HUD finally got rid of an unwanted property. The investor earned a great yield on his investment. And we received $42,075 in cash to buy and fix-up our house–all of it without having to qualify for a loan
or use any of our own money toward the purchase. Now you can understand why this is my favorite way to buy property!
Paul, I suggest that you copy J.P’s. full article and study it.
Ed Garcia
Re: Create Your Own Mortgage? - Posted by Paul in BR
Posted by Paul in BR on January 07, 2001 at 21:28:48:
Hi Ed,
I do understand what she was saying, and find it exciting to be able to do this. However, her article doesn’t say how to write the mortgage papers up. I have never written a mortgage, and don’t know how to do it. Is this something only an attorney should do? Or is there a ‘template’ of some kind that I can go by?
Paul
Re: Create Your Own Mortgage? - Posted by J.P. Vaughan
Posted by J.P. Vaughan on January 08, 2001 at 08:56:12:
Paul,
I intentionally did not explain how to create the documents
because NO ONE should ever attempt to do so without the
assistance of an attorney.
I strongly suggest that you hire a good real estate atty
to help you with all documents. After you use them a
couple of times, you can use them as a template for
future deals.
JP
Re: Create Your Own Mortgage? - Posted by Ed Garcia
Posted by Ed Garcia on January 07, 2001 at 23:42:10:
Paul,
Well why didn’t you say so? You’re having trouble writing up the mortgage. (smile)
Paul, There are many ways to go about it. Remember Paul, I can’t give legal advice. However I can tell you what I do. I own a mortgage company, so I have access to these types of documents. Secondly, Many investors go to an attorney to have them draw them up, and once they have them, they duplicate them for each of their deals. Third, you can find mortgage documents at most respectable stationary stores, or Title companies. Fourth if you want some FREE generic agreements, you can go to The 'Lectric Law Library’s, Business & General Forms at http://www.lectlaw.com/formb.htm.
Here you will find some useful generic business contracts for many occasions.
When you get there. Scroll down to REAL ESTATE FORMS. When you get there, go to MORTGAGE. Here is what you’ll see.
MORTGAGE
THIS INDENTURE, made as of the _____ day of _______, 19, by and
between __________, (“Mortgagor”), and ____________, (“Mortgagee”).
W I T N E S S E T H :
AMOUNT OF LIEN: “NOTE”
WHEREAS, Mortgagor is justly indebted to Mortgagee in the sum of
__________ DOLLARS ($ __________) in lawful money of the United States,
and has agreed to pay the same, with interest thereon, according tothe
terms of a certain note (the “Note”) given by Mortgagor to Mortgagee,
bearing even date herewith.
DESCRIPTION OF PROPERTY SUBJECT TO LIEN: “PREMISES”.
NOW, THEREFORE, in consideration of the premises and the sum hereinabove
setforth, and to secure the payment of the Secured Indebtedness as
defined herein, Mortgagor has granted, bargained, sold and conveyed, and
by these presents does grant, bargain, sell and convey unto Mortgagee
property situated in __________ County, __________, more particularly
described in Exhibit"A" attached hereto and by this reference made a part
hereof;
TOGETHER withall buildings, structures and other improvements now or
hereafter located on,above or below the surface of the property herein
before described, or any part and parcel thereof; and,
TOGETHER with all and singular the tenements, hereditaments, easements,
riparian and littoral rights, and appurtenances thereunto belonging or in
anywise appertaining, whether now owned or hereafter acquired by
Mortgagor,and including all rights of ingress and egress to and from
adjoining property(whether such rights now exist or subsequently arise)
together with the reversion or reversions, remainder and remainders,
rents, issues and profits thereof; and also all the estate, right, title,
interest, claim and demand whatsoever of Mortgagor of, in and to the same
and of, in and to every partand parcel thereof; and,
TOGETHER with all machinery, apparatus, equipment, fittings, fixtures,
whether actually or constructively attached to said property and
including all trade, domestic and ornamental fixtures, and articles of
personal property of every kind and nature whatsoever (hereinafter
collectively called “Equipment”), now or hereafter located in, upon or
under said property or any part thereof and used or usable in connection
with any present or future operation of said property and now owned or
hereafter acquired by Mortgagor; and,
TOGETHER with all the common elements appurtenant to any parcel, unit or
lotwhich is all or part of the Premises; and,
ALL the foregoing encumbered by this Mortgage being collectively referred
to herein as the “Premises”;
TO HAVE AND TO HOLD the Premises hereby granted to the use, benefit and
behalf of the Mortgagee, forever.
U.C.C. SECURITY AGREEMENT It is agreed that if any of the property
herein mortgaged is of a nature so that a security interest therein can
be perfected under the Uniform CommercialCode, this instrument shall
constitute a Security Agreement and Mortgagor agrees to join with the
Mortgagee in the execution of any financing statementsand to execute any
and all other instruments that may be required for the perfection or
renewal of such security interest under the Uniform Commercial Code.
EQUITY OF REDEMPTION Conditioned, however, that if Mortgagor shall
promptly pay or cause to be paid to Mortgagee, at its address listed in
the Note, or at such other place which may hereafter be designated by
Mortgagee, its or their successors or assigns,with interest, the
principal sum of __________ DOLLARS ($______) with final maturity, if not
sooner paid, as stated in said Note unless amended or extended according
to the terms of the Note executed by Mortgagor and payable to the order
of Mortgagee, then these presents shall cease and be void, otherwise
these presents shall remain in full force and effect.
ARTICLE ONE COVENANTS OF MORTGAGOR
Mortgagor covenants and agrees with Mortgagee as follows:
1.01 Secured Indebtedness. This Mortgage is given as security for the
Note and also as security for any and all other sums, indebtedness,
obligations and liabilities of any and every kind arising, under the Note
or this Mortgage, as amended or modified or supplemented from time to
time, and any and all renewals, modifications or extensions of any or all
of the foregoing (all of which are collectively referred to herein as the
“Secured Indebtedness”), the entire Secured Indebtedness being equally
secured with and having the same priority as any amounts owed at the date
hereof.
1.02 Performance of Note, Mortgage, Etc. Mortgagor shall perform,
observe and comply with all provisions hereof and ofthe Note and shall
promptly pay, in lawful money of the United States ofAmerica, to
Mortgagee the Secured Indebtedness with interest thereon as provided in
the Note, this Mortgage and all other documents constituting the Secured
Indebtedness.
1.03 Extent Of Payment Other Than Principal And Interest. Mortgagor
shall pay, when due and payable, (1) all taxes, assessments, general or
special, and other charges levied on, or assessed, placed or made against
the Premises, this instrument or the Secured Indebtedness or any interest
of the Mortgagee in the Premises or the obligations secured hereby; (2)
premiums on policies of fire and other hazard insurance covering the
Premises, as required herein; (3) ground rents or other lease rentals;
and (4) other sums related to the Premises or the indebtedness secured
hereby, if any, payable by Mortgagor.
1.04 Insurance. Mortgagor shall, at its sole cost and expense, keep the
Premises insured against all hazards as is customary and reasonable for
properties of similar type and nature located in __________ County,
__________.
1.05 Care of Property. Mortgagor shall maintain the Premises in good
condition and repair and shall not commit or suffer any material waste to
the Premises.
1.06 Prior Mortgage. With regard to the Prior Mortgage, Mortgagor
hereby agrees to: (i) Pay promptly, when due, all installments of
principal and interest and all other sums and charges made payable by the
Prior Mortgage; (ii) Promptly perform and observe all of the terms,
covenants and conditions required to be performed and observed by
Mortgagor under the Prior Mortgage,within the period provided in said
Prior Mortgage; (iii) Promptly notify Mortgagee of any default, or
notice claiming any eventof default by Mortgagor in the performance or
observance of any term, covenant or condition to be performed or observed
by Mortgagor under any such Prior Mortgage. (iv) Mortgagor will not
request nor will it accept any voluntary future advances under the Prior
Mortgage without Mortgagee’s prior written consent,which consent shall
not be unreasonably withheld.
ARTICLE TWO DEFAULTS
2.01 Event of Default. The occurrence of any one of the following
events which shall not be cured within _____ days after written notice of
the occurrence of the event, if the default is monetary, or which shall
not be cured within _____ days after written notice from Mortgagee, if
the default is non-monetary, shall constitute an “Event of Default”: (a)
Mortgagor fails to pay the Secured Indebtedness, or any part thereof,
orthe taxes, insurance and other charges, as herein before provided, when
and as the same shall become due and payable; (b) Any material warranty
of Mortgagor herein contained, or contained in the Note, proves untrue or
misleading in any material respect; (c) Mortgagor materially fails to
keep, observe, perform, carry out and execute the covenants, agreements,
obligations and conditions set out in this Mortgage, or in the Note; (d)
Foreclosure proceedings (whether judicial or otherwise) are instituted on
any mortgage or any lien of any kind secured by any portion of the
Premises and affecting the priority of this Mortgage.
2.02 Options Of Mortgagee Upon Event Of Default. Upon the occurrence of
any Event of Default, the Mortgagee may immediately do any one or more of
the following: (a) Declare the total Secured Indebtedness, including
without limitation all payments for taxes, assessments, insurance
premiums, liens, costs, expenses and attorney’s fees herein specified,
without notice to Mortgagor (such noticebeing hereby expressly waived),
to be due and collectible at once, byforeclosure or otherwise; (b)
Pursue any and all remedies available under the Uniform Commercial Code;
it being hereby agreed that ten (10) days’ notice as to the time, date
and place of any proposed sale shall be reasonable; (c) In the event
that Mortgagee elects to accelerate the maturity of the Secured
Indebtedness and declares the Secured Indebtedness to be due and payable
in full at once as provided for in Paragraph 1.02(a) hereinabove, or as
may be provided for in the Note, or any other provision or term of this
Mortgage, then Mortgagee shall have the right to pursue all of
Mortgagee’s rights and remedies for the collection of such Secured
Indebtedness, whether such rights and remedies are granted by this
Mortgage, any other agreement,law, equity or otherwise, to include,
without limitation, the institution of foreclosure proceedings against
the Premises under the terms of this Mortgage and any applicable state or
federal law.
ARTICLE THREE MISCELLANEOUS PROVISIONS
3.01 Prior Liens. Mortgagor shall keep the Premises free from all prior
liens (except for those consented to by Mortgagee).
3.02 Notice, Demand and Request. Every provision for notice and demand
or request shall be deemed fulfilled by written notice and demand or
request delivered in accordance with the provisions of the Note relating
to notice.
3.03 Meaning of Words. The words “Mortgagor” and “Mortgagee” whenever
used herein shall include all individuals, corporations (and if a
corporation, its officers, employees or agents), trusts and any and all
other persons or entities, and the respective heirs, executors,
administrators, legal representatives, successors and assigns of the
parties hereto, and all those holding under either of them. The pronouns
used herein shall include, when appropriate, either gender and both
singular and plural. The word “Note” shall also include one or more
notes and the grammatical construction of sentences shall conform
thereto.
3.04 Severability. If any provision of this Mortgage or any other Loan
Document or the application thereof shall, for any reason and to any
extent, be invalid or unenforceable, neither the remainder of the
instrument in which such provision is contained, nor the application of
the provision to other persons, entities or circumstances, nor any other
instrument referred to hereinabove shall be affected thereby, but instead
shall be enforced to the maximum extent permitted by law.
3.05 Governing Law. The terms and provisions of this Mortgage are to be
governed by the laws of the State of __________. No payment of interest
or in the nature of interest for any debt secured in part by this
Mortgage shall exceed the maximum amount permitted by law. Any payment
in excess of the maximum amount shall be applied or disbursed as provided
in the Note in regard to such amounts which are paid by the Mortgagor or
received by the Mortgagee.
3.06 Descriptive Headings. The descriptive headings used herein are for
convenience of reference only, and they are not intended to have any
effect whatsoever in determining the rights or obligations of the
Mortgagor or Mortgagee and they shall not be used in the interpretation
or construction hereof.
3.07 Attorney’s Fees. As used in this Mortgage, attorneys’ fees shall
include, but not be limited to, fees incurred in all matters of
collection and enforcement, construction and interpretation, before,
during and after suit, trial, proceedings and appeals. Attorneys’ fees
shall also include hourly charges for paralegals, law clerks and other
staff members operating under the supervision of an attorney.
3.08 Exculpation. Notwithstanding anything contained herein to the
contrary, the Note which this Mortgage secures is a non-recourse Note and
such Note shall be enforced against Mortgagor only to the extent of
Mortgagor’s interest in the Premises as described herein and to the
extent of Mortgagor’s interest in any personalty as may be described
herein.
IN WITNESS WHEREOF, the Mortgagor has caused this instrument to be duly
executed as of the day and year first above written.
Witnesses: __________ __________
STATE OF __________ COUNTY OF __________
[NOTARIZATION]
[Note: Do not assume this form is up-to-date or meets your’s, or the
law’s, requirements. Check with a competent authority before using. -
Staff]
Brought to you by - THE 'LECTRIC LAW LIBRARY™
The Net’s Finest Legal Resource For Legal Pros & Laypeople Alike.
WWW: http://www.lectlaw.com – e-mail: staff@lectlaw.com
I hope this helps,
Ed Garcia
Re: Create Your Own Mortgage? - Posted by David
Posted by David on April 13, 2004 at 12:55:02:
I know this is a response to an old post. I understand that no individual should attempt to Create the documents.
I don’t really think this is the issue. I really believe that individuals like myself are seeing dollar signs.
Ok after reading your article on How To Create Your Own Mortgage, and doing it to purchse deals is very attractive and recieved a lot of attention.
So this is the scenerio I assumed.
Find property, create note, sell note, go to closing wiht seller.
Is this the process that you go through. The other element of your article that was attrctive was the no need to have a credit check.
I’m surprised that your responses has not revealed some examples of the technique
DAVID
Re: Create Your Own Mortgage? - Posted by bvmp
Posted by bvmp on January 08, 2001 at 09:16:18:
Thanks for posting the url for the mortgage but I have a question…don’t you also have to have a promissory note as well. The mortgage on Lectlaw refers to a “note” and isn’t that also recorded and sold as well?
Where do we find a sample note with proper text and format to use in conjunction with the aforementioned mortgage document found at Lectlaw.
Thanks