Liens As "Financing" When Purchasing For Cash

[Bryan Hancock]

I read about the thread subject in a book from an expert last week and it made me think about things a bit. With institutional lending on a project I am assuming you will virtually always have to pay off liens at closing to get the debt since they will want to be in first position. Have any of your ever used liens as "financing" when buying a property for cash? In other words, instead of getting financing you can reduce the amount you pay to the seller in cash and leave the lien on the property until you exit.

This is quite creative and I was wondering if there are gotchas I am not thinking about for this in the real world. Ideas? Experiences? Some debt will follow the seller so this may not work as it reads in the books. In that case maybe it could be split or some such.

[Steve Babiak]

You can take control of a property "subject to" anything pre-existing; title insurance policies would indicate such things as exceptions.

If you can convince the lien holder to subordinate to a new loan so that the new lender gets senior lien position, then you might even be able to get financing. I actually saw a subordination agreement where the original first position bank had a small balance, and agreed to subordinate to a new loan that was put into place; then, the new loan ended up foreclosing and that original first (now a second) ended up getting ... you guessed it - NOTHING! So, crazy stuff happens.