>the holder of the first mortgage at 97% LTV will most
>likely not allow the seller to carry back a second
>mortgage
I guess if you prepare to do a seller financing and willing to accept a second mortgage, then you better off talk with your first mortgage holder first and see if he likes the idea of you taking on a second.
>If it becomes necessary to foreclose on the second,
>you must first cure the first mortgage. That usually
>means paying it off or at least bringing the payments
>current.
?? I thought the situation is when the buyer keeps up with the payment on the 1st but only fall behind on your 2nd. What’s the recourse you’ll have? I suppose the 1st holder doesn’t really care as they got paid on time.
Posted by Connie Gohata on May 17, 2001 at 14:45:37:
I have an interested “investor” who is new to the area and wants to buy my house. He thinks he can get an FHA loan for 97%. I told him that if he is an investor who will be renting the house out, he can’t be telling the lender that he is living in the house and he may not be able to get a 97% loan.
He is not pre-approved, yet, so I told him he should get that done so things will go quicker. I offered to help him find a lender/broker, but he is free to find his own.
He also thinks he can take cash out if I take back a second. I am willing to do that, after I get what I need out of the deal, but I told him I think the lender won’t like him doing that.
Here’s the proposed deal:
House is selling for $150K my price. He offered $146K as is, which I said great!
I need $20K cash and will take back a second.
He will get financing for 97% of $146K, which is $141,620, from which I get my $20K plus pay off my $115K mortgage.
What is left is $11,000 from the total selling price of $146K, to be taken back as a second. $6620 cash would go to the buyer. He would probably pay his down with this, I assume, which sounds fishy to me.
So, do I have the numbers right? I think he will have trouble getting the loan. Anyone with similar experience? Any advice? Should I walk away? If he comes to the table with a full 5% down of $7300, I get my $20K plus pay off my $115K loan and take back the balance minus the down, would the lender like that better? Is there a better counter I could offer? Help!
Re: Will this deal work? UPDATE - Posted by Connie Gohata
Posted by Connie Gohata on May 20, 2001 at 24:44:26:
I think the buyer figured out that I knew what he was trying to do. After I had thought he wasn’t going to reply to my last counter offer, he sent me a fax today after 4 days. He has been slow on replying for each counter I sent him (2). It took 1-1/2 weeks to make the first offer after he saw the house. So I am glad he’s gone. But it’s great getting thoughts from all of you and also I am learning to look behind my back.
Dear Connie,
sounds like great advice coming your way. Others will be able to guide you on the 2nd better than I. My husband and I did just purchase a home with FHA and may I say the guidelines are very strict. First it must be owner occupied for min. 12 months. Secondly the down payment (2.85%)is closely tracked so much so that if it’s a “gift” letter - the lender wants direct contact with the bank account issuing the “gift” to make sure the giver’s account could handle it (thus no bogus “gifts”). An FHA buyer could get closing costs wrapped (seller concessions) into the mortgage but absolutely not the down payment. Just a heads up which may vary I suspect but the insect infestation report can run you (as the seller) through the mill if termites/carpenter ants are in the picture. We as the buyers shelled out $1000 to fix the problem before closing because the house was a great price otherwise the seller would have had to. Best to let an FHA buyer do their homework. Take care
Sheila
Maybe it’s just me, but it seems like what you are doing here is taking some of your cash equity and giving it to the buyer. Sure, he signs a note for it, but if you had to foreclose and pay off the first, you’d come out with $6.6k less equity than you have now. I don’t see how this is too good a deal for you. An unscrupulus buyer could make a good living this way. When he can’t pay, he deeds back to you or to another “investor” subject to. Either way he walks with your equity and his credit probably intact.
Maybe I’m being too cynical.
Just my .02
Joe C.
If the person wants to buy your house w/ you carrying a second why not so long as it is in writing. To carry a second like this I would bridge across two or three properties.
As far as the lender and can it be done? The only concern you have is staying honest in writing and a time limit on the trasaction (30 days)
Pat
I agree with the earlier posts. It seems like a $11K seller carry-back second is not really likely to get paid off.
If you were to go through with this, would you get your payments on the loan? Look at the probable market rent and subtract expenses. Is there enough money left over to pay the first and the second loan?
Seller held seconds (or any seconds other than a down payment assistance, government approved program) are not allowed with FHA. You will be required to sign an affidavit that the transaction is being fully disclosed at closing with all cash exchanging hands shown on the HUD1. If you did this, you would have to sign and record the second seperate from the FHA closing–meaning he’d have to source his own funds up front and fraud would be committed in signing the required addendum. This is on top of the fact that an investor can’t use FHA anyway–without commiting fraud. And, I don’t know your area, but FHA’s normal max sales price is in the 130,000’s–unless you are in a high cost area (Miami, New York, etc) where the max is higher. Good luck on this one–I agree he seems a bit to unethical to suggest all these things to trust with your money!
Re: Will this deal work? - Posted by Tim (Atlanta)
Posted by Tim (Atlanta) on May 17, 2001 at 14:53:30:
You are correct in your concern over the way this “investor” is handling this. If he is telling the mortgage company that he will occupy the house, when he intends to rent it out, he is committing loan fraud. He is probably not going to tell the lender about the owner second you would be taking back and that is also fraud. He is trying to get cash back at closing. This can be done, but NOT if you can’t tell the mortgage originator about it. Think about it, you will be left with a 11000 second mortgage that is totally worthless. Do you really think he would pay on it? Especially if he is so dishonest with the lender? Also, how does he get the $6620 at closing? You sure can’t pay him that.
If he can get the 97% LTV loan, fine. Let him deal with the lender fraud. Just don’t you get caught up in his troubles by taking back a “forgivable” owner second.
So what is the right way for the seller to carry back a second mortgage?
Btw, I suppose the 2nd will be recorded alongside the first at the closing documents. So if he defaults on the 2nd the seller can legally foreclose on it. Am I correct??
Re: Will this deal work? - Posted by Tim (Atlanta)
Posted by Tim (Atlanta) on May 18, 2001 at 06:38:12:
I am not saying that the seller cannot carry back a second mortgage. I am saying that the holder of the first mortgage at 97% LTV will most likely not allow the seller to carry back a second mortgage. I believe your investor doesn’t intend on telling the first mortgage holder about the second, thereby committing fraud.
If it becomes necessary to foreclose on the second, you must first cure the first mortgage. That usually means paying it off or at least bringing the payments current. Besides, as another poster has said, why would you want to foreclose when you would have less equity after the foreclosure than you do now before you even sell it? It really sounds like a scam to me. Like I said before, if the investor can’t or won’t bring any money to the table to put in the deal, tell him to take a hike.