Property lien for seller financing--How to structure this?

Question

I'm looking at a duplex with seller financing and trying to determine the best way to structure the deal so I can refinance at a later date.  Upon talking to my local bank about the future refinance of the loan into a conventional, I was told:

Can someone explain if they are both referring to the same lien?  And, how is that lien filed -- similar to what a bank would file with the county?

Bill Gulley · Answer

Yes, it's the right thinking, look at the amortization schedule and you can see where you'd be, simplist way.

However, you should use an attroney to draft the note, not sure if that was clear, IF the safe act applies, if it does, there are restrictions on any balloon payment before 2/3 of the balance has been paid (unless that 2/3 has been changed as the regulations are still evolving, I've seen 1/2 as well) an attorney can tell you in your state. However, a note can be refinanced if a lender is willing and there are no note provisions preventing it.  A mortgage loan originator could also help. :)

Page Huyette · Answer

Thanks to all of you who have replied, I appreciate it.

Since everyone has been so speedy and helpful, I'll throw out another question on this seller financed deal.

In working the numbers, one factor I'm considering to determine the purchase price is where I'll need to be for a 75% LTV refi into a conventional when the seller loan comes due.  Taking into account rents collected, operating expenses and repairs (using the 50% rule and other know rehab expenses), I'm subtracting the paid principal to come up with what my loan amount will need to be for the conventional.  I'm assuming it would need to be 75%  of the  anticipated value of the property at refi time.  Am I on the right track?

Will Barnard · Answer

Balloons outside of 5 years are likely not going to raise any flags. As far as your rate and term refi, keep in mind that most lenders will want the loan seasoned for at least 6 months, meaning your original financing must be in place for at least that period with timely payments.

The insurance: You are simply adding the lender as "additionally insured" on the hazard policy to protect the lender's interests in the property. This way, upon a claim, the money is paid out to the lender first.

Page Huyette · Answer

So, as long as I use a title co. for the transaction, have an attorney review the contracts and set up a 3rd party servicer, it seems I should be in good shape for a rate and term refi.

In a lot of posts, I'm also seeing the fact that a balloon payment is prohibited due to SAFE.  If that is the case (it's a NOO property being bought as a investment) then what is the best way to write up the offer, since it would have to be due after a period of time, say 3-4 years?

Bill Gulley · Answer

Page, by lien the bank means an existing security lien a deed of trust, if there is an existing mortgage the loan is made to payoff the existing loan. If there is no existing mortgage or if you receive cash from a new loan above whet is required to pay off any existing loan, that is a cash-out refinance.

As to insurance, any lender needs to be added to the insured policy as a lien holder, just as they are if you had a car loan. The terms of providing insurance coverage and assigning insurance is contained in the security agreement or the deed of trust/mortgage.

The filing of the lien referres to the recording of the security agreement, the deed of trust, in the case of a loan in the public records at the Office of The Recorder of Deeds in the county inwhich the propeerty is loacted. Office name may vary, but it is filing or recording of the agreements that give public notice and that perfects or makes good the security interest given. :)

Account Closed · Answer

Page:  I recommend a recorded mortgage doc.  Write a purchase agreement with the seller, spelling out the purchase price, the down payment and and terms of the seller carry back (interest rate, number of months, etc.).  Put the contact into escrow with who ever does RE closings where you are (escrow company or attorney.  They will prepare the deed and your note and mortgage.  They will record the deed and the mortgage doc so the lender is secure.  At the time that you get an insurance quote, you tell the insurance agent who the lender is (the seller) and they are named on the insurance policy.