Seller Financing 2nd vs Dropping Price (did not appraise)

12 Replies

I am selling a condo and the appraisal came in $8000 short.  

My realtor was suggesting that we drop the price to the appraised value, but I feel like that is leaving money on the table.

I am considering offering seller financing on a second position (Junior) mortgage or perhaps an unsecured loan for the remaining $8000.  

 

Are there any servicing companies out there that would make sense for an $8000 loan?  Is this going to be a huge headache?  

I spent some time on google and I think I do not have to hire a loan originator (covered under the only one loan per 12-month rule - dodd frank), though not sure.

Do I have to issue monthly statements, annual insurance, report correctly on my taxes?

Would an unsecured note simplify the paperwork?  


This unit is in Illinois if that makes any difference.  


Any advice or direction would be appreciated.  


Thanks



 things: 1.Your buyer is getting a mortgage. The program and rate they are doing does not allow a second or combined loan to value.  2. If combined loan to value is above 97% no one will buy a $8000 second. 3. You need to PAY someone to service the loan, find a hard money guy in the subject city and see what is possible. 4. About the Dodd Frank rule it's not just hire a loan originator - you have to keep records and the qualifying package for seven years after you are paid in full and 90 other rules.  Do you trust these people? Maybe ask for something like a car, or artwork, or personal note rather than the fuss of servicing a mortgage?

That is helpful!  I do not want a ton of headaches here.  They are putting 20% down btw.  I would rather take a personal note for 8000 that they may not even pay back rather than drop the price 8000.  I think they have good credit so it is likely they would pay it back.  

I wonder if an unsecured loan will cause them issues (other than dept to income) with getting the mortgate.

@David Green I think the first question is are they willing to pay $8000 more then the appraised value? If they are just have them pay in cash and the mortgage company wont care in the least as it wont change their down payment or DTI. If they are not willing to pay more then the appraised value then its a moot point.

I am sure they are willing to pay the extra 8000, but I don't know if they have it on hand. I think the 20% down (to prevent PMI) was pushing their reserves.

I will of course negotiate the best deal that I can get and was thinking of asking for a promissory note to make up the difference (if they don't have the cash)

Originally posted by @David Green :

I am sure they are willing to pay the extra 8000, but I don't know if they have it on hand. I think the 20% down (to prevent PMI) was pushing their reserves.

I will of course negotiate the best deal that I can get and was thinking of asking for a promissory note to make up the difference (if they don't have the cash)

Their DTI is based on ALL debt payments that are over 6 mos in duration. The $8,000 will figure into their DTI. You can file a lien for the 2nd against the property and later in life when they sell or refinance, you get paid off. I've done these and have not had a problem. Your escrow company can help you on this.

 

I agree, I had multiple offers in the first 3 days. I do not think it is right for realtors to all go into this thinking they will drop the price back down as soon as the appraisal comes in. They can pay PMI and drop their down payment if needed.

My attorney told me that the buyer has a conventional loan and banks will not allow any financing to come from the seller.  He also shared he has seen many recent deals in the local market come in with lower appraisals and that most buyers and sellers are meeting in the middle.  I will see how these negotiations go.

@David Green

That’s interesting they are not wanting to pay the “ appraisal gap”. It’s happening all over the country. In Idaho they are wanting people to put a proof of funds in their offer for the appraisal gap. I think they definitely should find a way to pay this.

To answer the quesiton, I use this servicer, $15/mo if no escrowing: madisonmanagement.net

Most commercial lenders don't allow seller seconds.  The lender HAS a say re total debt.

If this is an occupant loan, the buyer/borrower will occupy, then lenders do care about total debt per Dodd Frank.

A not filed private note is mortgage fraud...  when the bank is not aware of more debt.

The best solution is the seller takes a hair cut and drops the price.  After all, canceling and re listing you'll run into a low appraisal again.  Best of luck.

Thanks for the info and advice.  I am still negotiating.  A new comp came in (that supports my price) but the lender (Rate.com) said they can't use it since it was after the appraisal was done.  

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