Unseasoned note buyer? Seller financing.

3 Replies

This is a very similar question to one that was posted quite recently but different enough that I wanted to start a new discussion.   My seller wants to sell their property.  The buyer wants seller financing.  The seller needs cash.  Could the seller of the property write the buyer a note for seller financing and then immediately sell the note to a note investor for the cash they need without running into Dodd-Frank issues?  I am thinking of a one time deal for the seller as opposed to someone trying to write a lot notes on properties they own.   Secondly, if this is OK are there any note buyers out there that would want to fill me in on what they would look for in a new note such as this?  With financing of properties getting more and more difficult it would be nice to have an option like this in my arsenal for selling properties.  

Robert Breen, Real Estate Agent in MI (#6502376288)

    @Robert Breen

    @?scott arpen

    probably exempt with only one transaction of their personal property.

    note buyer will want some seasoning ... and will have to sell at a discount.

    but yes can be done for sure.

    We have a 2 year seasoned note and got a quote for resale of half what we originally lent, even though the property has about 40K in equity in it.  We decided to continue holding the note.

    @Robert Breen

    If the seller is not in the business of creating loans and is not defined as a builder i.e. “…has not constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business.." you should be okay. I would not feel comfortable table funding the note transaction but would want a payment to come in before finalizing the note purchase.

    I have stayed out of the unseasoned note space because it is usually not an economically efficient model for the seller. In today’s market the seller may get 60 cents on the dollar for an unseasoned note. To get more they need to find a buyer willing to pay 10%+ interest but be credit worthy enough for some type of conventional financing. Real bad credit could be offset by 30% cash down but that buyer is scarce. The other options are to sell at a price far exceeding the true market value of the property or claim the property is totally repaired when in fact major problems were cosmetically covered up so they would not be found until the seller was long gone.

    Not that you or your sellers would do this but that is my mindset on notes with little seasoning. Seasoned notes have far more value in my mind.

    The only feasible option if you wanted at least some cash fairly quickly would be to sell 4 to 5 years of the note. This assumes there is not much debt on the property now.

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