Doable or not - Posted by Sterling
Posted by Sterling on October 09, 2003 at 18:48:41:
About 9 years ago Smith bought a house from Jones (fictitious names). The purchase was on a land contract where Smith paid Jones each month with a balloon payment due in 10 years. Now the 10 years are almost up and Smith’s credit is not good enough to get a mortgage to make the balloon payment.
The balloon payment is $45,000 due 1 April 2004. Smith had the house appraised. It’s worth $60,000 in present condition, $80,000 ARV. Jones is not flexible. He wants to take the house back and gain the equity.
I’m willing to pay Smith $60,000 for the building. If I can get a mortgage for $48,000 (80% of appraised value) I can pay Jones his $45,000 and have $3,000 to go toward closing costs. Obviously I am going to have to pay the closing costs since Smith can’t and Jones won’t. Smith is willing to take my unsecured note for $12,000.
This deal is in its infancy. I have not fully checked it out nor have I approached any lenders. However, several questions occur to me.
First, are lenders likely to accept my unsecured note to Smith as a down payment or are they going to demand that I pay Smith cash?
Second, Smith may be willing to accept less than $60,000. Maybe even as little as $45,000 just for the satisfaction that Jones does not get the house. Are lenders likely to lend me 80% of appraised value or will a lower selling price mean a smaller loan?
Third, the appraiser said that his estimate of an ARV of $80,000 was based on what houses in that area have recently sold for. He thinks that if the house sells for $60,000 it will depress values in that neighborhood, bringing the ARV down.