What should we do? - Posted by Rob FL

Posted by Jeffrey G. Branyan on November 13, 1998 at 09:36:16:

All good ideas: Offerring a discount to refinance (if he can do it- sounds like credit may be a problem), Selling the note now (a small discount may be in order since the balance is fairly low and the yeild can rise quickly even with a small discount- a yield of 13-14% may be acceptable even with bad credit since there is seasoning and a low ITV). Or, you can refinance him yourself now and remove the ballon so he doesn’t have worry about it, then sell it later. My best advice is to talk to an estate planner and see what benefits there are to transferring the note to you or your parents now. That would save your grandfather a lot of hassel. Then deal with the problems on your own. As always, if you do sell it, fax me the info at 972-985-7829 and I’ll go to work on it.

What should we do? - Posted by Rob FL

Posted by Rob FL on November 12, 1998 at 21:34:12:

My grandfather who is 88 years old but still in decent health has note he is recieving payments on. He owned a home and carried back a note on it. The deal was this, the mtg was for 15 yrs. but amortized over 30. With a balloon for 29,000 due at the end of the 15 yrs. The balloon is due in Dec. 1999. The payer has just recently gotten a little slow paying. Through several phone calls and threats of legal action I finally got the fellow to catch up all his mtg payments (he was 6 months behind at one time, but now is current). My grandfather is sick of this guy and wants his money now. The interest rate on the note is 10% at $550/month P&I or so. I have asked the payer to refi the property and get a better rate. (The property is worth about 80,000). But for whatever reasons he will not refi. I am afraid when the balloon comes around that we may end up forcing foreclosure which my grandfather does not want to do if at all possible (for religious reasons, I guess it happens when you get that old)

My question what is the best way for my grandfather to get his cash out?

I have thought about selling note at a discount or giving homeowner a discount to refi. Any suggestions are greatly appreciated.

Be creative and pro-active - Posted by John Behle

Posted by John Behle on November 13, 1998 at 15:35:17:

Good ideas from everyone.

What is your grandfather’s position as far as taxes and income needs? What taxes would he have to pay and does he want to?

What are his needs as far as income? Does he want the $29k or is the cash flow helpful? If he wants a greater cash flow, you can sell an amortized partial to cover his income needs. I know there is a balloon, but it sounds like they might be interested in extending it.

Option 1 - Buy the note yourself. Use cash from other sources. An IRA would be good for this, or use investor cash with an option to buy it yourself at a profit.

Option 2 - Get the payor to refinance. Offer a discount. If your Grandfather doesn’t need or want the cash, you buy the note, receive the cash and give your Grandfather a note (or notes) on other properties as your purchase price on the paper. You get a real cheap loan.

Option 3 - Sell the note. With that equity, it is real saleable. As I mentioned above, you could also sell a partial or an amortized partial. The best bet would be for you to do the amortized partial.

If taxes are a concern, you can do an “Installment Sandwich.” This can get your Grandfather the cash flow and tax savings he needs and get you the cash. If taxes are a problem, there is also a Charitable Trust technique that can avoid all capital gains, get a tax writeoff, provide income for your Grandfather and still send the benefits on to the heirs at death (via a life insurance policy paid by the trust). The trust could own, collect or extend the note, own and rent or sell the property, or sell the note to buy other properties, notes or ?.

Sounds like you have a foreclosure in embryo here. It’s not a problem - except for your Grandfather. Get the problem away from him and into the hands of someone (like yourself) that can turn it into a win/win opportunity.

Re: What should we do? - Posted by Eduardo (OR)

Posted by Eduardo (OR) on November 13, 1998 at 13:37:05:


The balloon is due in a year. Why are you worrying about it now? The earliest time to be talking to payor about his intentions would be 6-8 months from now, just to ask what he intends to do. Big question: If balloon of $29,000 can’t be paid on time and property is worth $80,000, then foreclosure would net a property which could be sold for a $51,000 profit! Your grandfather doesn’t want to foreclose for religious reasons. Why don’t you buy an option from your grandfather to purchase note and then, if balloon isn’t paid, exercise the option and foreclose yourself. This is business, it happens thousands of times a day all over the United States. Aren’t you a business man? By taking the tack that you will “pay” payor to refinance or you will sell note at a discount, you or your grandfather stand to lose a possible $50,000 plus. (I suspect payor will move heaven and earth to come up with balloon in a year to avoid foreclosure.) --Eduardo P.S. Your grandfather may be sick of the guy and want his money now, but contractually he can’t have it for a year–if he REALLY wants it now, buy his note yourself (at a discount, of course–he’d have to discount it to anyone else).