Owner Finance deal- has 2 mortgages, Agreement for Deed …Can I even buy this thing?

39 Replies

Found an Ownder Finance deal but found out it has an Agreement for Deed with 2 mortgages due on Nov 15th 2016:

$18,500 mortgage due to an individual

$34,450 mortgage due to an LLC

Paid $55K with $5 down and paying $700/month with $200 applying to principal and $500 in interest. Bought Nov 2011

All this info is in the Agreement for Deed, which is an intresting read I must say.

Can I buy this with owner financing today without the other 2 mortgages being paid off? If we do come to some agreement on the price and payments but she for some reason can't pay off the 2 mortgages in 2016 what will happen? (foreclosure on both of us?) Are there other concerns I need to be aware of?

What are you looking at for a purchase price?  Is it just assuming the loans?  

I would try to renegotiate the loans and get them in my name if I was acquiring the property.  The loans were probably written for 5 years because they thought rates would increase significantly.  They haven't so it should be pretty easy to get them to extend another 5 years on market or slightly lower terms.  If they won't extend them I would want a discount that would allow flipping/wholesaling the property as an exit strategy.

Is this property an investment property?

Originally posted by @Jesse T. :

What are you looking at for a purchase price?  Is it just assuming the loans?  

I would try to renegotiate the loans and get them in my name if I was acquiring the property.  The loans were probably written for 5 years because they thought rates would increase significantly.  They haven't so it should be pretty easy to get them to extend another 5 years on market or slightly lower terms.  If they won't extend them I would want a discount that would allow flipping/wholesaling the property as an exit strategy.

Is this property an investment property?

Yes, I wanted to purchase as a rental, the #'s won't work at $700/mo payment as tax and ins would be about $200/ mo. Would rent for $950 maybe $1000/ mo.

The problem is the rates on those loans are ridiculous - it looks like 12% if those are original balances.  If those are current balances, it would be about 10%.  That combined with a balloon would be likely to support charges of predatory lending.  I think the seller needs a lawyer not an investor.

It is hard to get involved profitably without appearing to be taking advantage of the situation.  The plus side is helping the potential seller maybe a good way to find an ethical real estate lawyer.  Since the motivation for a lawyer would be getting things made right vs. a fat fee.

Originally posted by @Jesse T. :

The problem is the rates on those loans are ridiculous - it looks like 12% if those are original balances.  If those are current balances, it would be about 10%.  That combined with a balloon would be likely to support charges of predatory lending.  I think the seller needs a lawyer not an investor.

It is hard to get involved profitably without appearing to be taking advantage of the situation.  The plus side is helping the potential seller maybe a good way to find an ethical real estate lawyer.  Since the motivation for a lawyer would be getting things made right vs. a fat fee.

Those are the origional balances, all spelled out in the Agreement for Deed. She's pretty desperate to get out.

Originally posted by @Amanda Young :

Those are the origional balances, all spelled out in the Agreement for Deed. She's pretty desperate to get out.

 Most people would be if they were paying 3 times market interest rates on their mortgage and facing a balloon.

@Jesse T.  

So I can renegotiate the loans with the origional sellers and remove her? If thats something she would consider?

Amanda the terminology you are using makes the agreement sound more like a Contract for Deed or Land Contract which is NOT the same as Mortgage.  "Agreement for Deed" would loosely imply that the Deed has not been transferred to the lady you are talking to.  She must need to satisfy the terms of the contract, by paying as agreed, and then upon the final payment the deed will convey from one of the two parties to the lady.

The contract terms are a little hard to follow.  I assumed there was a typo in your original post and the purchase price was $55k with a $5k (above didn't have "k") down payment.  If the lady brought $5k (and not five dollars) then the loan amount should be $50k and through her payments the balance should be less than $50k.  The sum of the two accounts exceeds $50k at $52,950.   There could be some reasons legit reason for this but I am inclined by the looks to say otherwise.  This looks little like this lady has been taken advantage of.  

I am guessing the two other parties here are improperly treating this account and structure. Likely mostly the guy in the middle, the LLC. The lady does not know any better perhaps not the 'individual' either.

If the lady is in a contract for deed, she can not mortgage the house to you.  She does not own the deed.  So, you must pull the deed from record and see what is going on, whose name is on it?  (My guess is the LLC)

Next pull both of these "mortgages" out from public record and see who is the Borrower.  Perhaps the 'individual' was the original owner and the LLC is some wholesaler company. So, I am guessing the individual mortgaged to the LLC which then did a Contract for Deed or some mangled wrap mortgage thing to the Lady.  This gets a bit complicated from there, but there is a very, very high chance this is all done improperly.  This lady might be entitled to some damages.  The LLC might be in some hot water for a couple of things.  All this depends on how it really looks under the hood. Take caution with all of that too, don't jump in to the middle of a fire.

I would go get a title report for $100 to $150 and review this chain of events.  Be sure to tell the abstracter to go back two owners.  That should also get you copies of all the deeds and recorded security instruments (if any).  

The end game would be clean this up, which may not be easy, and see who is in trouble and who has power to make a deal.  If you can clarify those details re-post here and we can see where it takes us, if it is of merit.  Safe to say, this is not a property you want to buy with this mess hanging around.

Originally posted by @Amanda Young :

@Jesse T. 

So I can renegotiate the loans with the origional sellers and remove her? If thats something she would consider?

No!  As best I can tell this is a predatory situation.  You do not want to get involved in a situation where you profit from it, also would you want to do business with people who put her in this situation?

Was the down payment $5 or $5,000?  At 5K and those interest rates, it is pretty clear they were setting her up to fail. 

Originally posted by @Dion DePaoli :

Amanda the terminology you are using makes the agreement sound more like a Contract for Deed or Land Contract which is NOT the same as Mortgage.  "Agreement for Deed" would loosely imply that the Deed has not been transferred to the lady you are talking to.  She must need to satisfy the terms of the contract, by paying as agreed, and then upon the final payment the deed will convey from one of the two parties to the lady.

The contract terms are a little hard to follow.  I assumed there was a typo in your original post and the purchase price was $55k with a $5k (above didn't have "k") down payment.  If the lady brought $5k (and not five dollars) then the loan amount should be $50k and through her payments the balance should be less than $50k.  The sum of the two accounts exceeds $50k at $52,950.   There could be some reasons legit reason for this but I am inclined by the looks to say otherwise.  This looks little like this lady has been taken advantage of.  

I am guessing the two other parties here are improperly treating this account and structure. Likely mostly the guy in the middle, the LLC. The lady does not know any better perhaps not the 'individual' either.

If the lady is in a contract for deed, she can not mortgage the house to you.  She does not own the deed.  So, you must pull the deed from record and see what is going on, whose name is on it?  (My guess is the LLC)

Next pull both of these "mortgages" out from public record and see who is the Borrower.  Perhaps the 'individual' was the original owner and the LLC is some wholesaler company. So, I am guessing the individual mortgaged to the LLC which then did a Contract for Deed or some mangled wrap mortgage thing to the Lady.  This gets a bit complicated from there, but there is a very, very high chance this is all done improperly.  This lady might be entitled to some damages.  The LLC might be in some hot water for a couple of things.  All this depends on how it really looks under the hood. Take caution with all of that too, don't jump in to the middle of a fire.

I would go get a title report for $100 to $150 and review this chain of events.  Be sure to tell the abstracter to go back two owners.  That should also get you copies of all the deeds and recorded security instruments (if any).  

The end game would be clean this up, which may not be easy, and see who is in trouble and who has power to make a deal.  If you can clarify those details re-post here and we can see where it takes us, if it is of merit.  Safe to say, this is not a property you want to buy with this mess hanging around.

Great advice, exaclty what I was looking for. It does say Agreement for deed and yes its $5K down. I'll see if I can find out the other info for sure

Originally posted by @Jesse T. :
Originally posted by @Amanda Young:

@Jesse T. 

So I can renegotiate the loans with the origional sellers and remove her? If thats something she would consider?

No!  As best I can tell this is a predatory situation.  You do not want to get involved in a situation where you profit from it, also would you want to do business with people who put her in this situation?

Was the down payment $5 or $5,000?  At 5K and those interest rates, it is pretty clear they were setting her up to fail. 

Got it! You're so right, when I seen the #'s it didn't make sense to me...but now that you put it this way I see its bad allthe way around. Now I feel bad for her :(

As` Dion mention, she is in an installment contract, she can't sell and finance what she doesn't own and she can't pass title subject-to since she doesn't have any title interests.

Agree too, the numbers don't look right. She might get a heck of a deal, if she was messed over, have an attorney look at the deal after you get title work.

She can sell, but the underlying mortgages must be paid off putting her in title, if just for a minute.

Until the numbers are defined can't say if it's a deal, I'm guessing not.

Doesn't sound like a contract you would want to try to assume through the two note holders, they may be related parties too. Interest and principal aren't amortized if those amounts are to be constant, that wouldn't be a compliant note. Even amounts are very odd! Might be good to let an attorney take a look at it, shouldn't cost anything to get an opinion, if there is something screwy they will tell you and what costs would be and action to take.

Other readers......see how these seller financed deals come to the surface after they are made and how others get involved????? That's how you get hammered and lose big bucks! :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Originally posted by @Bill G.:

As` Dion mention, she is in an installment contract, she can't sell and finance what she doesn't own and she can't pass title subject-to since she doesn't have any title interests.

Agree too, the numbers don't look right. She might get a heck of a deal, if she was messed over, have an attorney look at the deal after you get title work.

She can sell, but the underlying mortgages must be paid off putting her in title, if just for a minute.

Until the numbers are defined can't say if it's a deal, I'm guessing not.

Doesn't sound like a contract you would want to try to assume through the two note holders, they may be related parties too. Interest and principal aren't amortized if those amounts are to be constant, that wouldn't be a compliant note. Even amounts are very odd! Might be good to let an attorney take a look at it, shouldn't cost anything to get an opinion, if there is something screwy they will tell you and what costs would be and action to take.

Other readers......see how these seller financed deals come to the surface after they are made and how others get involved????? That's how you get hammered and lose big bucks! :)

The #'s are odd, I thought that too. I do have a copy of the Agreement, I wish someone else can look at it too. Or remove all the personal info and post the wording here. I didn't think she could sell it to me, but I'm new and for sure don't know all the rules here. As soon as I talk to her I'll post an update. If anything, I'm learing a lot!

Okay, wipe out the names and address, legal description and post it, dollars to doughnuts it's going to be junk! Get her permission to post it, IMO. Leave the date it was made!  :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

INSTRUMENT#: , BK:

10:05:23 AM, DOC TAX PD(F.S.

$185.50 DEPUTY CLERK: XXX

3400 . Kennedy

F 330

Typpay

This Agreement

XXX PG: 261 PGS:

201.02) $385.00

Pat xxx , Clerk Of

263 11/21/2011 at

261

DOC TAX PD(F.S.201 .08)

the Circult Court H111sborough County

for Deed made thx s day of

2011, between XXX, LLC, whose mailing address

is XXX Palm Harbor, Florida 34683,

party of the first part; and XXX, a married woman, whose

mailing address is XXX Tampa, Florida 33615, party

of the second part,

WITNESSETH, that if the said party of the second part shall

first make the payments and perform the covenants hereinafter

mentioned on her part to be made and performed, the said part of

the first part hereby covenants and agrees to convey and assure to

the said part of the second part, her heirs, executors,

administrators or assigns, in fee simple, clear of all encumbrances

whatever, by a good and sufficLent deed, the lot, piece o: parcel

of land situated in the County of Hillsborough, State of Florida,

known and described as follows:

Lot 205 and 206, XXX Page XX of the public records of Hillsborough County, Florida,

also known as XXX Tampa, Florida 33624 and the said party of the second part hereby covenants and agrees

to pay to the said party of the f 11st part the sum of Fifty—Five

Thousand ($55, 000 . 00) Dollars,

in the manner following :

The principal of Five Thousand ($5, 000.00) Dollars to the party of the

first part on the date of the execution hereof .

The rema in ing

balance of Fifty Thousand ($50, 000.00) Dollars shall be payable at

the rate of Seven Hundred ($700 . CO) Dollars monthly beginning

December 15 , 2011 and on the fifteenth day of every month

thereafter through and including November 15, 2016, when the

remaining contract balance shall be due and payable. $200.00 of

each said $700.00 payment shall apply to the principal contract

balance, with the remaining portion of the payment to apply to

interest.

The sale of the property shall be as—is with no

warranties or representations to the character or condition of the

The party of the second part shall pay all taxes,

property assessments or impositions that may be legally levied or imposed

upon said land subsequent to the year 2011.

The party of the

second part shall maintain a homeowners insurance policy on the

property for its full insurable value naming the party of the first

part an addi t ional

insured Xloss payee thereunder,

1 n form

reasonably satisfactory to part of the first part.

In the case of

the failure of the said party of the second part to make any of the

payments, or any part thereof, or to perform any of the covenants

on her part hereby made and entered into, then, in such event, the

party of the first part shall have the option to declare the

remaining balance due and payable in full and to pursue foreclosure

and any other rights allowed the party of the first part under Florida

IT IS AGREED by and between the parties hereto, that

the time of each payment shall be essential part of this contract,

and that all covenants and agreements herein contained shall extend

to and be obligatory upon the heirs, executors, administrators and

assigns of the respective parties .

The parties acknowledge that there are two (2) outstanding

mortgages on the real property which are not being paid off at

closing. A second mortgage dated February 25, 2011 made in favor

of XXX in the original principal sum of Eighteen

Thousand Five Hundred Fifty ($18, 550.00) Dollars recorded in

Official Records Book 20402 Page XXX of the public records of

Hillsborough County, Florida, with the remaining principal balance

of $18, 500.00. There is a first mortgage on the subject property

dated February 25, 2011 in favor of XXX, LLC in

the original sum of Thirty Four Thousand Four Hundred Fifty

($34, 450.00) Dollars recorded in Official Records Book 20391 Page

XXX of the public records of Hillsborough County, Florida, with a

remaining principal balance of $34, 450 . 00.

The party the first part will continue to make timely payments of the first and second

mortgage and will pay—off in full the first and second mortgage

upon payment by the party of the second part of all sums due under

the Agreement for Deed.

IN WITNESS WHEREOF, the parties have hereunto set their hands

and seals the day and year first written above.

Signed,

Originally posted by @Bill G.:

Okay, wipe out the names and address, legal description and post it, dollars to doughnuts it's going to be junk! Get her permission to post it, IMO. Leave the date it was made!  :)

Took out all the names and anything else I thought needed to be removed. Please let me know if I've missed something here.

Update:

The Warrant Deed is in the sellers LLC

I talked with her again and discussed what we all talked about here. Looked like she was took advantage of and had she considered talking to a RE lawyer. She really had no response to this, she just wants out. She has 2 kids and one on the way, not working and losing money left and right on this thing. She bought it thinking she’d pay it off before Nov 2016 and obviously that’s not going to happen.

Why are terms like predatory lending and junk being tossed around? This is the same type of victimhood that made strategic defaults vogue. 

The contract cannot be more clear and it is more clear than the contract on the back of a pawn broker or payday loan company receipt. She gave $5000 in exchange for the right to purchase a home incrementally at a rate of $700/month. $200 every month pays down the principal, now please pull out your 10bii calculators and figure out what principal paydown would be after the 36th month of a 12% interest loan. I think it is about $700... This deal is structured to force some equity. At the end of her five year term she will have $12,000 equity. If she rented what would her monthly rent be? About $900. How much equity would she have in her home after 3 years? ZERO. The contract for purchase or lease option is a great way for those who lack credit to buy in to the American Dream and if they use this initial option period to rebuild their credit then they can and should be able to refinance the property in to a traditional mortgage, if they don't take the opportunity to build credit then they have tossed away $5000 and are no worse for the wear compared to the rental market.

The way I read this story is that someone paid money for the opportunity at home ownership, they do not want it anymore and want to move away. The time to consult a trusted adviser was prior to the purchase of the home. 

Solving everyone's problem could be as easy as offering a low amount for the note and moving on the next property. You will likely be turned down by the note holders, but then again the note holders could be hard up for money and you might be in the right place at the right time. 

Originally posted by @Doug Merriott :

Why are terms like predatory lending and junk being tossed around? This is the same type of victimhood that made strategic defaults vogue. 

The contract cannot be more clear and it is more clear than the contract on the back of a pawn broker or payday loan company receipt. She gave $5000 in exchange for the right to purchase a home incrementally at a rate of $700/month. $200 every month pays down the principal, now please pull out your 10bii calculators and figure out what principal paydown would be after the 36th month of a 12% interest loan. I think it is about $700... This deal is structured to force some equity. At the end of her five year term she will have $12,000 equity. If she rented what would her monthly rent be? About $900. How much equity would she have in her home after 3 years? ZERO. The contract for purchase or lease option is a great way for those who lack credit to buy in to the American Dream and if they use this initial option period to rebuild their credit then they can and should be able to refinance the property in to a traditional mortgage, if they don't take the opportunity to build credit then they have tossed away $5000 and are no worse for the wear compared to the rental market.

The way I read this story is that someone paid money for the opportunity at home ownership, they do not want it anymore and want to move away. The time to consult a trusted adviser was prior to the purchase of the home. 

Solving everyone's problem could be as easy as offering a low amount for the note and moving on the next property. You will likely be turned down by the note holders, but then again the note holders could be hard up for money and you might be in the right place at the right time. 

 How would you go about buying this house then? She's pretty desperate to get out

@Doug Merriott  Couldn't agree with you more!

@Amanda Young  What is the house worth?  You might be able to find an equity partner or private lender to pay off the notes (ask note holders for a reduce amount as Doug Merriott mentioned).  You then could lease option the property to someone else.  Depending on your exit strategy or what the numbers look like from a cash flow perspective, you might want to stay in the deal or assign it to someone else.

Do you want to rent it out? Would you manage it in the area it is in? If so offer what you think the house is worth. No way in hell would you pay $200/month in TI payments if you were landlord, something does not seem right about that math. So even if you offer $45k, rent it for $900/month you are doing okay as a 2% rule property. OR if money is the issue wholetail it out to another landlord. 

Originally posted by @Wes Eaves :

@Doug Merriott  Couldn't agree with you more!

@Amanda Young What is the house worth?  You might be able to find an equity partner or private lender to pay off the notes (ask note holders for a reduce amount as Doug Merriott mentioned).  You then could lease option the property to someone else.  Depending on your exit strategy or what the numbers look like from a cash flow perspective, you might want to stay in the deal or assign it to someone else.

 Worth about 65-70k, mind you I've not had it inspected or anything.  I'd like to keep it for cash flow....but I don't want to get into something which is can't be sold to start with ...and I don't know enough one way or another,  which is why I post here :)

@Doug Merriott  the problem is the safe act (and predatory lending) don't pertain to pawnshops you pawn things (you can live without usually), not houses. A house is something in which someone lives and it affects there life and society as a whole. Like it or not if you sell to a owner occupant there are laws, and your argument wont hold water whether I agree with you or not. 5k was taken from this lady, and some could argue in a way that she was likely to fail. My lawyer even steers me clear of lease options, that's another story and based in local case law. Bottom line if dealing with homeowner you need a RMLO to do the paperwork, and I am fairly certain this was not done that way, she might get the house if a judge is pissed enough over it. 

She's not an owner occupant, She bought it as a rental

Originally posted by @Doug Merriott :

Why are terms like predatory lending and junk being tossed around? This is the same type of victimhood that made strategic defaults vogue. 

 If this was a 6% or 7% loan, the arrangement would be weird(making a wrap mortgage for more than you owe), but they would not have legally liability.

However by charging an interest rate above 8% the loan is classified as a high cost loan.

Features of high cost loans include:

A prohibition of Balloon payments

A required disclosure that the loan puts the home at risk

An analysis of the ability to repay

The first 2 are clearly violated and I would not be surprised if the third was also.

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