Will the Compensating note Technique work here? - Posted by David Alexander

Real Estate Investing
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Posted by Bud Branstetter on October 28, 1998 at 12:22:29:

David,

If an investor were trying to refi the 80-90% figure would be correct. With a homeowner they will probably do a 100% of the loan amount if he can qualify and the house appraises for that amount. Check your local mortgage broker. If you lease optioned the house and in a year or so they didn’t exercise the option you could get another 5 or 6K. If you don’t feel that you can get enough with a L/O, sell owner financed with the balloon at 2 years. Accept a deed in lieu of if they can’t refi. The underlying debt does not have to be wiped out. The most junior lien holder is always in control because he can make up payments and foreclose to get title if need be.

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Will the Compensating note Technique work here? - Posted by David Alexander

Posted by David Alexander on October 23, 1998 at 24:42:10:

Here’s the deal: 95k house, can get for 85k(not a bargain,
but, I need the cash). NQA of 70k and 15k cash is what the owner wants. I have him ready to take 9k now and carry the other 6k in a note secured by the balloon payment. I told him I would encourage an immediate refinance, to help him get his cash sooner.

My exit is sell for 100k, with owner financing with min.
of 5k down(the cash I need to beat the immediate cash flow blues) . Wrap 95k\5 year balloon around 70k Remaining balance.

I’m selling the cash flow up to the 5 year balloon for 9k. I’ll be giving the investor a clause in the partial contract to get 1.1 to 1.3 times his money in the case of early payout, depending on stage of payout, he’ll also have an interest in the balloon.

He says (the investor) we should wrap seperate 89k around 70k and give seller a subordinate 6k note, no payments, no
interest, 5 yr balloon. That way we would stay in control.

Is there any way to use your compensating note technique
to help the seller fill a little more at ease, like he’s not going to be just kissing that 6k away. The way I’m having to sell this is that I’m going for a refinance as soon as
possible to get him his 6k back out.

The way I see it happening now is that if a refi happens,
it would probably be at 80-90%, leaving me with paper
for me thats great, I want paper. But, 90% times 95k is
85,500 - 70k loan balance leaves 15,500 - 11,700(1.3 * 9k)
leaves 3800 or not enough to satisfy the seller.

How do you do the mirror note thing, does it require other
paper or assets?

Thanks,

David Alexander