Posted by Michael Morrongiello on October 24, 2006 at 12:38:23:
In Reply to: Re: A cookie Cutter approach to Use posted by Bob Smith on October 24, 2006 at 11:01:36:
Bob:
You know this but for the benifit of others...A CASH sale is a CASH Sale, an owner financed sale involves the seller taking back the "paper" - it is not cash.
If you as a property seller want cash then hold out, wait, and wait, perhaps get beat up on your asking price, DROP your price, etc. until you can acheive an ALL CASH sale of your property- IF that is what you need or desire.
If however you want to "stop the bleeding", convert an unsold asset (that rental home, or fix n flip home, etc.) you are holding as so called inventory into INCOME- consider marketing and selling the property with the owner financed twist. No one is compelling you to do this... its YOUR choice.
Its been proven over and over again that offering to owner finance a property helps EXPAND your marketing efforts and your pool of potential buyers. It distinguishes YOUR unsold property from your competitors.
You can with the right buyer, and parameters followed, elect to move right through the owner financed "paper" and convert it into a cash sum virtually at the time that the property is sold OR you can and may actually have to HOLD on to the seller financed "paper" for a bit before you sell it....(again YOUR choice)
You asked a couple of good questions... let me address each briefly here because of space constraints;
Comment:
>Move through the owner financed "paper" by selling the Note and realizing a discounted cash
>pay price (typically in the 92% +/- range or $225K for the $245K Note instrument)Your Question:
Who takes the interest rate risk (the risk that the required yield changed during the seasoning period), you or the note's seller?Answer:
UNTIL the actual assignment of the Mortgage (or Trust Deed) and Note transaction takes place the holder of the Note (that would be the property seller who took back the owner financed instrument) will bear any risk of default, changes in the credit profile or scores of the Note payor, and potential market condition changes that might occur until such time that they actually COMPLETE the closing involving the sale of their Note instrument.Clearly this is offset in that interim period of time however by;
A) Their already having obtained a cash down payment paid to them by the buyer
B) Receiving payments and interest on the Note until it is sold
C) Having the real estate collateral back the seller financed Note instrument they took back.
Comment:
>The KEY is to understand that you must be meticulous in your paperwork and your
>selection of appropriate buyers.Question:
To what standard is the paperwork and buyer selection done. FNMA Lo-Doc?Answer:
Not to be flippant but -There is no standard! - we are dealing in the non conforming loan marketplace. We've seen property sellers and buyers get together and do some crazy things. However if that helps you GET YOUR PROPERTY SOLD FAST and STOPS THE BLEEDING TODAY is that worth it to you? Many will say YES.As for "tweaking" your paperwork correctly, generally speaking we like to see well drafted Mortgage & Instrument's which do not have to be FNMA docs (although those are acceptable). Some issues to be addressed within those documents;
A) A due on sale clause
B) A late payment penalty fee
C) 30 day default provision
D) Rights to accelerate payment in full upon default
E) Assignment of Rents & Leases (especially good with a rental use property)
F) Personal & Individual liability to repay the Note indebteness.
On top of this;
A) Have a way to document the payments collected
B) Obtain and maintain all personal information on the buyers (their SS #'s, home and work #'s, employment info, insurance info, etc.)
C) Check their CREDIT out BEFORE agreeing to sell to them and to finance them. Do not negotiate any interest rate or repayment terms until that is done FIRST.
Hope the above helps out a bit......
Best to your success,
Michael Morrongiello
Author of the Unity of Real Estate & "Paper" home study course