Seller financing with no equity

13 Replies

Would you be able to do a seller financing deal With a SFR you have a mortgage with little to no equity in?

Such as a home you purchased for 200,000 And are selling to someone for near the same price of $210,000 with a slightly higher interest rate than your mortgage?

Some investors do what Your speaking of. It has to be done just right in order to protect all parties as much as possible.

To long to write a thread trying to teach you how though.

It depends on the type of seller financing you use.  If you already have a lien on the property, you can't duplicate it.  You would need to do a form of SF that didn't involve lien rights that would overlap any existing liens

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Thank you all for responding.  Listening to the podcasts, I've heard wraps are potentially illegal.  Did I misunderstand that?

@Joe Villeneuve  Would you mind going into further detail on this?  Am I understanding you correctly?  If I owe the bank 200k (mortgage) for the property that would be one lien (bank).  If I sell the property for 210k that would be the second lien on the property (me).  I would be at the butt end on the first lien.  The purchaser would be at the butt end on the second lien.  So, if I don't pay my mortgage the purchaser in the seller finance contract is screwed because the bank has the original interest in the home.  There may be some sort of attempt at a lawsuit by the purchaser against me, the bank, or both to reconcile the lost interest in the property.  I guess you would need to write up an agreement with all 3 parties to assure no one will sue and lay out contingency plans for possible worst case scenarios?


@Dennis M.  Hey Dennis, that's a great question and good suggestion.  I was just thinking it would be beneficial to both parties (I and the purchaser) because:

1. I don't think you're going to find a ton of people who are going to do seller financing that has a huge mortgage behind it right?  (Not sure because I am very new to this, so please correct me if I'm wrong).

2. I would think you'd have the ability to take a much smaller margin on this sort of strategy vs evaluating a rental because you don't have to subtract property tax, vacancy, cap ex, etc. due to you just carrying the note or whatever it would be called in this situation.

3. I should've really put this in the first post, but I'm assuming you have no money in the deal because you cashed out or just had a VA loan or another variation of it to begin with. With that in mind you're earning free money with no work involved except to set it up in the beginning, so any amount of free money would be amazing.

4. Back to the purchaser; a big reason would be so you can go for a larger buyer base such as owner occupants instead of just investors looking for a good price on a property who are willing to fork over a large interest rate payment for the CoC/ROI. If you have a good interest rate on your mortgage and you offer the purchaser a rate just above your good rate, they may choose the seller financing option over a bank considering it's probably going to be a competitive rate depending on the purchaser's credit score.

@Corey Martin. If I am thinking about your post correctly, the solution would be to do a master lease agreement. It’s effectively a purchase option.

The new buyer will make lease payments to the seller for whatever determined time period. The seller will in turn pay the mortgage. The buyer technically owns the property through equitable title.

Lots of videos on your tube

@Sam B.  Great!  Thanks for the response.  In your scenario, what happens if I stop paying the mortgage?  Is the property foreclosed on by the bank or does the buyer just have the option to buy the property from the bank, now?

Originally posted by @Corey Martin:

Thank you all for responding.  Listening to the podcasts, I've heard wraps are potentially illegal.  Did I misunderstand that?

@Joe Villeneuve  Would you mind going into further detail on this?  Am I understanding you correctly?  If I owe the bank 200k (mortgage) for the property that would be one lien (bank).  If I sell the property for 210k that would be the second lien on the property (me).  I would be at the butt end on the first lien.  The purchaser would be at the butt end on the second lien.  So, if I don't pay my mortgage the purchaser in the seller finance contract is screwed because the bank has the original interest in the home.  There may be some sort of attempt at a lawsuit by the purchaser against me, the bank, or both to reconcile the lost interest in the property.  I guess you would need to write up an agreement with all 3 parties to assure no one will sue and lay out contingency plans for possible worst case scenarios?


@Dennis M.  Hey Dennis, that's a great question and good suggestion.  I was just thinking it would be beneficial to both parties (I and the purchaser) because:

1. I don't think you're going to find a ton of people who are going to do seller financing that has a huge mortgage behind it right?  (Not sure because I am very new to this, so please correct me if I'm wrong).

2. I would think you'd have the ability to take a much smaller margin on this sort of strategy vs evaluating a rental because you don't have to subtract property tax, vacancy, cap ex, etc. due to you just carrying the note or whatever it would be called in this situation.

3. I should've really put this in the first post, but I'm assuming you have no money in the deal because you cashed out or just had a VA loan or another variation of it to begin with. With that in mind you're earning free money with no work involved except to set it up in the beginning, so any amount of free money would be amazing.

4. Back to the purchaser; a big reason would be so you can go for a larger buyer base such as owner occupants instead of just investors looking for a good price on a property who are willing to fork over a large interest rate payment for the CoC/ROI. If you have a good interest rate on your mortgage and you offer the purchaser a rate just above your good rate, they may choose the seller financing option over a bank considering it's probably going to be a competitive rate depending on the purchaser's credit score.

 Two parties can't have the same lien position on the same property.  What you would be trying to do is sell the same thing to two different people.  It's not just the lien position, it's the right to sell too.

Look at it this way.  You're buying a property from Person A for any amount.  You're selling the same property to Person B.  Great.  This can work (there' still a lien overlap here though) as long as you buy the property first, and then sell it to Person B.  What if, you decide NOT to buy the property from Person A?  If you don't own the property in question, you can't legally sell it to Person B...and person B doesn't have an agreement with Person A...not does Person A have a responsibility to sell the property to Person B.

You can, however, sell Person B your right to buy the property from Person A.  Once you do this, you no longer have any right to buy the property...Person B does though.

@Corey Martin. The seller would be responsible to continue to pay the mortgage. If the seller doesn’t pay I believe it would be foreclosed and seller would be on the hook (assuming there’s a personal guarantee).

If the master lease agreement is structured right the buyer of the lease option may structure the agreement in a way that requires verification or a third party to see that the mortgage and liabilities are being paid on time

@Corey Martin @Joe Villeneuve 

@Sam B.

Sam it’s a lease option and that would probably be his simpler solution. Good point for you to point that out.

Joe you’re deep :) I know what a first, second etc is:) you have a way with words. 

(I have done many wraps personally)

Corey... You all really what a wrap is due to your long post about it. Quick over view without a lot of verbiage 

1. You have to get insurance just right and not all insurance  Agents know how to write wraps.

2. Your still on the hook to pay even if your buyer doesn’t. 

3.It should be serviced thru a note Servicing company to protect the buyers as well and the Note Servicing company will pay the underlying Note each month and direct deposit the difference into your bank account.

4. Correct disclosures at closing.

5. If taxes and insurance is escrowed it is a pass through payment to the buyers and you need to be able to explain this to buyers.

6. If buyers stopped paying you will need to start paying the first Note and forclose.

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