Posted by Randy (SD) on November 30, 2004 at 17:10:56:
Just for clarification your down payment does not go to the bank?it goes to the seller. There is no way to have funds dispersed in closing that do not show up on the HUD-1, it?s a simple balance sheet, money in money out.
Two thoughts come to mind IF your seller is motivated.
A promissory note secured by ?other? real estate owned by this seller. Take a $50k note on his home, which he pays off outside of closing after close. (separate transaction but your protected)
There are many variations on a ?performance mortgage?. For example you say ?we? I assume you have a partner or professional entity like a LLC (if not you may need to get/create one). Have the seller sign a performance mortgage for $50k payable to someone you trust (this gets recorded just like any other lien) it appears on the HUD-1 as any other seller debt. I have successfully used a performance mortgage and consulting fee agreement to accomplish your objective. FYI the PM is contingent on a ?specific? event occurring, if it doesn?t close for example the PM is void.
I’m working on a big apartment building deal that cash flows at the asking price. So rather than negotiating the price down with the seller, we would prefer to pay the asking price and have the seller credit us $50,000 at closing, essentially replenishing our down payment to the bank.
Our problem is that I’m not sure how to go about structuring the deal so that it doesn’t appear on the HUD-1. If we incorporate the “cash-back” clause into our sales contract, our lender is not going to go for it because they want to see us come out of pocket. Our seller on the other hand is fine with it and it’s just a matter of how to go about doing this.
So…our question is “how do we structure our deal to get cash back at closing without it appearing on the HUD-1 for the bank object to?” It needs documented in some manner so as to protect us. Thanks.
Re: Roadblock—Creative Financing - Posted by MicheleCO.
Posted by MicheleCO. on November 30, 2004 at 20:50:26:
You could buy something from the seller that is not real estate such as appliance. Pay for them separately outside of the closing.
This is a grey area, but it gets the job done. I wouldn’t do this for huge amounts that are not secure if you don’t know or trust your seller very well.
Re: Roadblock—Creative Financing - Posted by Dick Chelten
Posted by Dick Chelten on November 30, 2004 at 18:14:25:
Several years back I bought my first small office building for $250,000 and deep in the Purchase Agreement, we said the Seller was to provide $50,000 towards repairs and renovations.
We applied for a $200,000 loan, 80% of the purchase price, but actually 100% of what I was really paying.
My lender didn’t even recognize the issue and, I suspect, wasn’t looking at any HUD1 type form (we rarely used HUD1 forms in commercial transactions when I was buying-could be different now).
Anyway, I came to closing with $0 the seller’s $50,000 was used as my down payment. I would suggest you write up your PA the same way. Far more reason for $50,000 in repairs and renovations on an apartment buidling, wouldn’t you think?
It sounds like the “credit” from the seller is more like a silent 2nd mortgage. I’m not sure about commercial financing, but I do know that in residential financing, any subordinate financing must be disclosed to the lender. To do otherwise might be considered lender fraud.