Mortgage Release On Private Note?
Hi, my partner and i are currently doing a deal were their is a private mortgage by the sellers parents. we have signed the deal up with a buy offer and acceptance contract for 70 grand and currently have about 5 people interested in it. my first question is what should i do to secure our position? we want to do a double closing with one of the new cash buyers, but when they or there lawyer does a title search we are not going to be on it. i talked to a lawyer who said putting title in escrow will not secure our position. the reason we want to do a double closing is that we dont want our buyers to know that we are making 30 grand off them. our lawyer suggested assigning the contract and i balked at him, not for that price.
my second question is that since its a private mortgage our lawyer is saying that we need the note holders to sign a release of mortgage stating that they agree to accept the payment. he said they dont have to accept the money it they dont want. the note holders are the sellers parents and she dosnt get along with her father, and she also has not paid much money at all in the four years she has owned it, so the lawyer is worried that he might want the interest that the seller never paid. does this sound right? any insight into my situation would be great. JEB.
[ Edited by ZinOrganization on Date 08/24/2004 ][ Edited by ZinOrganization on Date 08/24/2004 ]
Hi, i am "the partner" and i just have one comment to make on this. It is not that the Lawyer said that putting the deed in escrow would not ness. secure it, it is that he does not think its needed. he said it was save us money to not put it in "escrow" becasue this way, we will not be charged taxes for buying and for selling. according to him, taxes will cost us approx. 1500.00. we explained to him that we basically want to Buy and Sell the house. we do not want to sell the contract. Thanks, Ryan [ Edited by I_Need_Help on Date 08/24/2004 ]
WIth respect to your lawyer, is he highly or minimally experienced with real estate? The reason I ask is that if I understand your situation, the "seller" is attempting to sell her deed prior to owning it. The deed usually does not become the "homeowner's" with "private mortages" or owner-financing, until the contract is fulfilled. That is why one of the names for an owner-financing document is "Contract For Deed."
It seems to me the "seller" can only be the private money lender. Any deal you're able to work to take over payments with the lender, and assume some equity as well, should be the goal.
Seller-financed mortgages are perfect for finding profit and making deals. All this assumes "private money" was indeed owner-financing by Dad, and he holds "bare title" like a car dealership until payoff.
Good luck!!
Alan
so what are you saying, that the seller does not own the house? she is the one on the deed. obviously the mortgage needs to be fullfilled at closing, but why do we need permission from them to close. our regular lawyer is out of town on vacation and my partner called another realestate lawyer in the same firm an older by the books type, but he said he had no problem with our creative ideas. basically we dont want to take it sub2 we just want to set up a double closing and close with the seller and then the buyer and pay off the mortgage with the buyers cash. i just dont see why we need permission to give the note holders (sellers parents) money.
[ Edited by ZinOrganization on Date 08/25/2004 ][ Edited by ZinOrganization on Date 08/25/2004 ]
If she is on the deed alone, she owns the house. Check the courthouse records to see if her parents recorded their mortgage. If not, that loan does not have to be paid off when she sells it. Now, I am not saying not to pay them, just that you don't have to pay them as part of the transaction. If they did record it, work out a payoff as part of the purchase.
Since they are not being paid fully now, they may accept less than full payment. For example, if she owes $70K to her parents over the next 20 years at a low interest rate, that's worth less than $30K today. So, you might get them to settle for less than the full amount and get them to cure the loan, which could increase your profit.
I'd also pick the buyer that is not using conventional financing, so you don't have to worry about title seasoning. You can have your seller Quit Claim the property to you, pay her off or give her a note to pay her in 30 days, sell to your buyer, collect the money, pay off the seller and her parents, deposit your share and go find another deal. Now, you'll pay transfer taxes, but $1500 to make $30K or more is not bad.
Good luck
Peter
moveitnow, thanks for the reply. yes the mortgage is recorded so it would have to be paid off. i was thinking about having it deeded to me with an exclusion stating that i can deed it back to the seller if i dont get an end buyer. yes i was planning on selling to a buyer who has cash. i was also entertaining the thought of putting it into a land trust, but my lawyer dosnt understand trusts and i would have to explain them to him to make sure he was comfortable with it. the only thing im concerned about is having the prop. deeded to me and then not having the parents release the mortgage for whats owed 58,000. i didnt understand what you said about the mortgage being equal to 30,000 today in your above post. do you mean 30,000 in interest alone plus the 58,000 left on the note. thanks Jeb.
moveitnow, thank you now i understand what you were saying, yeah it is possible that they could take less as payoff, but they are old and its supposed to be there retirement money so hopefully they will just take whats owed or less and we will make around 30k. but wouldnt putting it into a landtrust be good if we sold it conventionaly because the lenders wouldnt have any seasoning problems, or would they? Jeb.[ Edited by ZinOrganization on Date 08/26/2004 ]
First, let me say I am happy to hear you say you're happy paying the parents the full amount. It is an honorable perspective, and still leaves plenty of profit.
To your questions: if you can pick a buyer that is not using a conv loan, no seasoning issue. If you have a mortgage broker you work with, steer the buyer to them to eliminate that issue. Or, document how you raised the value of the house (paint, landscape, cleanup, new appliances, whatever), plus get good comps.
If the lender is worried about seasoning, they'll ask to see the trust doc, showing you as the beneficiary, so you'll be visible anyway.
My original pushback on the trust was that it is not a way to avoid transfer taxes. Tax avoidance is fine, but trying to hide the transfer is just going to bring trouble.
Peter
Thank you again Peter. i think i will just go ahead and have it deeded to me with an exclusion stating that i can quitclaim it back to the seller if i dont close with one of my buyers. hopefully the sellers parents/note holders dont have a problem excepting payoff without the interest that was never paid to them, i dont see it being a big problem, I guess i was just spooked by this lawyer who we usually dont deal with. thanks again JEB.
You are welcome, JEB. There are others here that know more, especially the moderators, but I am glad to help.
A couple more thoughts:
- I don't like the weasel clause where you can deed it back if you can't sell it. Your seller wants out and you are getting a good deal to solve their problem. To give it back in a couple months because you can't sell it seems a little unprofessional, especially since the parents are holding the mortgage. It may just be me, but this may cause the seller or her parents balk.
- With $30K to play with, you should be able to make this work. At this price, you might even consider refinancing it with a balloon note and rent it if you can't sell it quickly.
Now, close this one and go find the next deal.
Peter