Concerns from seller on 100% owner finance deal

11 Replies

I have a seller, very interested selling his properties to me when I showed him a lower purchase price, but higher interest rate on his portfolio. It is basically 10 SFH properties, being sold at 1.2 million, interest rate 6%, amor over 30 years.

He liked the monthly amount he would be getting, but was concerned about 100% owner finance, in the event if I was to die or become seriously injured, I couldn't pay the mortgage to him.  He'd have to take back the homes, and legal fee's for everything. I feel he has a valid point, and wondering what my options are.

This is the first owner finance deal I've done, and not sure how to move forward from here. How can I relieve his fears, until i build up more equity in the properties?

Your seller has valid concerns there, as you mention.  Either gotta put some skin in the game or offer additional collateral on other RE or a really cool toy you have.  Congrats on finding a portfolio seller willing to work with you like this.  Do what you got to do to solve his concerns @Jennifer Jesse  !  

@Jennifer Jesse Without bringing some cash to the table I'm not sure you could alleviate his fears about seller financing.  He'd have to foreclose on you if you failed to pay and that is neither quick nor cheap.  Maybe you could bring in a partner who would provide 10% down and you could split the deal.

Or maybe you could do some sort of sandwich lease option where you manage all the properties, pay for all repairs, get some profit from all your efforts until such a time as you have accumulated enough funds from the property to use a the down payment and switch over to owner-financed.

@Jennifer Jesse

 One of the concerns you raised and possibly both can be partially alleviated with insurance. Purchase a $1m, decreasing term insurance policy for 30 years and make him the lien holder the beneficiary. You "may" be able to purchase disability insurance with income replacement as well (expensive). You may offer the life insurance first, fairly inexpensive if you are insurable. 

You'll have to check with a real estate attorney but I believe you can also put the deeds in escrow.  If for any reason you were not able to perform on the note for more than 60 days or 90 days he could get the deeds back w/o going the foreclosure route.  I believe that is correct, but someone else with more experience may want to chime in.

Does he need to sell them all at the same time?  Maybe you could start off with 1 or 2 of the properties and when those are performing after a couple years he could sell you the rest.  Make sure those properties stand on their own as an investment - you don't need to overpay just for the possibility of getting more properties.

@Jennifer Jesse

@James Rey

When I buy on subject to existing financing and a note or no note, or a wrap, I offer to put a deed in escrow that says

if for some reason I don't pay on time, say 60 days or more, they get the properties back without a foreclosure

Determine if you can sign a Deed in Lieu of Foreclosure in the event you expire or don't make payments.  Not a legal opinion, just a suggestion.

Thanks guys for all your input!

@Brian Gibbons

 could you elaborate about putting the deed in escrow?  I like the sound of that.  Would the deeds be in escrow until the properties are sold or paid off?  

Jennifer it's important you understand that when you were buying on terms the seller is trusting you to do a good job and worst-case scenario he feels protected

Probably the best thing for you to do is to go down to the title company and talk to the manager and say that 

youd like to open up escrow,  and in case there's a default on an arrangement with the note, the property is  returned, as a warranty deed held in escrow, etc.

Sorry, but pre-arranged deeds for foreclosure won't stand, you may have statutory redemption rights that are set by law, you can not just agree to waive legal rights and you're taking the rights of heirs as well. You can also have "stale" deeds, being say 3 years old, a Recorder may not always accept them and filing requirements can change as well. The matter is also tainted with the issues of title matters as to when deeds were executed and filed.

Don gave the right solution, it is solved with a annual decreasing term policy (it should be the cheapest not mortgage term) and assign the proceeds.

As to incapacitation, at that amount, set up a Trust and have properties revert to the Trust, you'll have a Trustee and you can give instructions as to payments made. You can also assign rents in the event of default and have a manager put in place, the payments being applied to the payment required. Hazard insurance is also assigned as a loss payee, but ensure you have the right to proceeds for repairs required. a total loss can go to the lender and you have a lot free and clear. 

100% financing is fine, if it cash flows, properties are decent, in decent areas, and you're not overpaying.

Multiple properties on a blanket loan need a release amount for each property so you only pay so much for the release so you can sell or refinance that property.

Need to see your attorney on this one, the seller's concerns are not overwhelming at all and can be managed.

Ha! 18,500th post :))  Good luck :) 

Thanks @Brian Gibbons and @Bill Gulley

I'll head to title office and attorney this week.  I def think we can move forward with the new information I now have. Love Bigger Pockets! 

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