Posted by John Merchant on May 21, 2003 at 17:32:35:
The poster wants to create a note based on equity in his property–so the note would be created between him and…who? Isn’t he really looking for a equity based loan? What am I missing here?
NOTHING! You’ve got it exactly right, and that’s what these people just don’t get! Just a loan under another name & they’re usually no-go deals.
Also, I am curious about your discussion with the lawyer. What was his take on the discount? That someone would pay 100% of face value? Where would he have gotten the idea that note buyers pay 100%. Do any note buyers pay 100% of face value? Uh, and where can I find them. (Actually, I’m sure my mother would pay 100% if I sold the idea right. But she is not a note buyer.)
Well, again you’re right. The lawyer’s mom would have been the only buyer; but if she had any sense even she would have rejected it. The guy may be a whiz bang lawyer in some areas, but obviously not finance.
I bought a house in New Jersey for 273,000. The house just got appraised for 590,000 and its rented out right now. I was wondering instead of going to a mortgage company to get a second mortgage or home equity loan, can I somehow create a note for 150,000… then sell the note at a discount for cash? Is this a better way to obtain cash from equity and not bother my credit. My plan is to use that money to put down for another house.
Can someone please let me know if this is feasible? if not is there a better way?
Given that you’re the one making the payments anyway, one way to temper the amount of the discount is to offer the note to the seller of the other house. You could get a first to give the owner some cash and give him the second on your property for the rest. The property he is selling would be used as collateral for the first mortgage only.
Posted by John Merchant on May 20, 2003 at 23:26:36:
A newly owner “created” note is not always very saleable, so you should construct if VERY carefully if you’re going to try to sell it.
I have an article on the topic on www.papersourceonline.com, that I suggest you visit and read, that will point out some of the issues and problems you’re going to face with a created note.
One of the issues is usury.
If you create a new note, let’s say at your state’s max. interest rate, then immediately sell it for substantial discount (which is the way notes are sold…NOT for 100% of face amount!)then you might later claim the note buyer knew he was really making YOU a loan, and at illegally high (usurious) rate so as to make it legally uncollectable! Knowing this, I wouldn’t buy that note, which is really just a fiction for a new equity loan to you.
I had an in-your-face knock down argument with a lawyer recently about this very issue; he just couldn’t understand why such a note was any different from a legitimate, genuine, owner carryback note on the real sale of RE to a real buyer…no matter what I said, he had a different opinion…and I finally gave up, and to my knowledge he has yet to sell his note/loan, just not grasping that real note buyers want real-world market discounts for paying today’s cash for future payments yet to be received.
Posted by Kristine-CAq on May 21, 2003 at 24:20:50:
John Merchant: as usual, your answers to posts provoke me to ask questions. The poster wants to create a note based on equity in his property–so the note would be created between him and…who? Isn’t he really looking for a equity based loan? What am I missing here?
Also, I am curious about your discussion with the lawyer. What was his take on the discount? That someone would pay 100% of face value? Where would he have gotten the idea that note buyers pay 100%. Do any note buyers pay 100% of face value? Uh, and where can I find them. (Actually, I’m sure my mother would pay 100% if I sold the idea right. But she is not a note buyer.)
As always, thank you for the thoughts and experience you share on this site. I greatly appreciate it.