Posted by Michael A, Bardelli on February 09, 2002 at 06:03:56:
To all,
Thank you for your many responses. I have found the information useful. Mr. Morrongiello thank your for showing me your website as your application to pre-qual these buyers will be very useful in the coming days. I will keep your company in mind when I go to eventually sell this paper. Thank you all again.
Sincerely,
Michael A. Bardelli
Help in selling condo using seller fianancing - Posted by Michael Bardelli
Posted by Michael Bardelli on February 05, 2002 at 17:30:47:
To all:
I am seeking advice on how to best sell one of my rentals via seller financing as I don’t quite have a grasp of the “taking back the note” concept yet. Here is the situation and my home state is Virginia (Hampton Roads area)
Condo bought in 1998 for 51,000$
1st mortgage payoff value is approx 45,800$ (no other mortgages or liens on property)
Don’t quite know what the place is worth but I estimate 58000 or so.
My question: How would I structure a deal so that I can sell this property using seller financing? Would it be considered a “wrap around” mortgage and would it trigger the due on sale clause? Thank you for any advice.
A few issues to consider - Posted by Michael Morrongiello
Posted by Michael Morrongiello on February 06, 2002 at 21:58:07:
Michael:
If you take back a “wrap around” type instrument you might be in danger of triggering the infamous “DOS” due on sale clause since you have conveyed the property to a buyer.
You can explore using a Contract for deed, land contract, agreement for deed, or some other installment type agreement as a means of being more “covert” with regard to the DOS clause.
If you intend to take back the seller financed Deed of trust and then sell it for cash either at the same time you sell the property or shorthly thereafter, then the DOS clause issues becomes less important since ultimately you will be paying off the other financing from the proceeds realized when the seller financed Note is sold.
To your success,
Michael Morrongiello
Re: A few issues to consider - Posted by Michael Bardelli
Posted by Michael Bardelli on February 07, 2002 at 04:35:02:
Mr. Morrongiello,
Thank you for your response. I, like any other investor, fear the old due on sale clause. I have thought about using a land contract but the place has extremely high condo fees. Here are the numbers:
PITI: 371.91$/month
Condo fees: 140$/month
If I do a wrap, I would either have to have a really high selling price or charge a high interest rate for my seller financing. The other option that you put forth sounds more appealing. That is to carry back a note and then have a commercial note buyer cash me out. Would there be any profit in the deal for me? I ask because I don’t know what a note would sell for. Here are the numbers that I can probably get for seller financing. Maybe you can make some sense out of them and tell me if this is a profit or not.
Payoff of 1st mortgage: 45,900$ (this is approximate but close)
Sales price: Roughly 58000$
I would charge 8.5%. Currently the 1st is at 6.5% fixed and the potential buyers have bad credit. They have made all rent payments on time and are just now about to be two years out of bankrupcy. Maybe that isn’t enough interest. However, using those numbers, is it possible to pay off the 1st mortgage and still have some profit for myself. I am not looking for a large number as this is my first deal. I just want to come out somewhat ahead. I aquired the property for 51000$. Any advice would be great. Thank you for your previous response.
Respectfully,
Michael A. Bardelli
Sloppy credit - Why 8.5%? - Posted by Michael Morrongiello
Posted by Michael Morrongiello on February 07, 2002 at 14:16:35:
Michael:
There is simply NO reason to agree to finance these folks at 8.5% unless its out of the goodness of your heart… Their “bad” credit background apparently is not deserving of this. The fact that you’re even considering a sale to them where you would also extend them financing is a kind enough gesture.
Without being able to offcially see how “bad” their bad credit is, what their credit scores are, what they do for a living, what amount of cash will they put down towards the $58,000.00 purchase price, etc. it will be difficult to pinpoint what might be a reasonable rate of interest to charge them and where the cash value figures will shake out upon the sale of a newly created Note & Deed of Trust.
At first blush, I believe you can SELL the property, finance these buyers or other potential buyers by carrying back a Seller financed Note & Deed of Trust, and then selling that “paper” to effectively generate enough cash to pay off your existing debt and put a few dollars in your pocket…
It would really be a dissservice to you and these potential buyers to speculate “what if’s”…
As we like to say in our business (of buying paper)“the proof is in the pudding…” - why not gather together some information on them, perhaps an application (you can obtain one from our web site), and information so that the credit issues can be looked at more closely. Then some concrete #'s can easily and readily be generated.
Warmly,
Michael Morrongiello