Mechanics of Seller Carrying a Second Lien

Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes

What are the mechanics of a seller carrying a second lien?...and would the process simply be that they apply for a HELOC and loan the cash?...or can this be structured some other less intrusive way?

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John Thedford

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

10y

@Brandon Sturgill

Carrying back a 2nd also allows buyers to complete a purchase if they cannot qualify for a bigger loan. The other positive with a seller carry back is the seller receives interest as though they are the bank. The negative side to seller carry back on a 2nd is if the 1st defaults, the 2nd position lien holder MUST buy out the first either before foreclosure or at foreclosure to protect their interest. Otherwise, if the sale only brings the amount due on the 1st, the 2nd is wiped out and the note holder gets -0-.

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
10y
"Carrying a second" means they accept less than the purchase price at closing, and carry the difference as a mtg, junior to the one you used to buy the property, assuming your 1st mtg lender would allow it.
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Matt Skog
Minneapolis, MN · Member since 2016 · 60 posts · 18 votes
10y
Some older home sellers actually do this intentionally. They may have major repairs necessary, and to more easily make a sale, will sell it as a fixer-upper. If the house has an existing mortgage on it, the seller may help the buyer by creating a new first mortgage to satisfy the existing one. Then will carry back a second, to make a full sale price, or charge a high interest rate so as to make passive income, to delay paying capital gains. There are several strategies that can be used by an experienced seller.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
@Brandon Sturgill
Carrying back a 2nd also allows buyers to complete a purchase if they cannot qualify for a bigger loan. The other positive with a seller carry back is the seller receives interest as though they are the bank. The negative side to seller carry back on a 2nd is if the 1st defaults, the 2nd position lien holder MUST buy out the first either before foreclosure or at foreclosure to protect their interest. Otherwise, if the sale only brings the amount due on the 1st, the 2nd is wiped out and the note holder gets -0-.
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Brandon SturgillBusiness Member
OP
Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
9y
@Matt Skog can you provide an example with numbers? Thanks
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Matt Skog
Minneapolis, MN · Member since 2016 · 60 posts · 18 votes
9y
Brandon Sturgill, no problem. Just last week I did some due diligence on a single family home close to the fairgrounds of Anoka County, MN. I found that the couple was wanting to retire down south. Their mortgage had been satisfied five years ago, and no satisfactory offers had come their way in looking to sell. No major repairs were needed, their home was only thirty-five years old. Just a lot of deferred maintenance. We are in negotiatons that would give them more than full price, with VERY FAVORABLE terms for both sellers and myself. Comps in the neighborhood have sold for $190-210K recently. We are looking at a new conventional First for $60-70K, with the seller carrying back $100K at 11%. Seller subsequently agrees to sell a partial Second. After consulting my attorney, he agreed that with such a low balance on the new First, that my equity stake is highly protected against a defaulted Second. We should be closing the deal very soon. I hope that this was enough detail with REAL numbers. Good luck with your ventures!
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Brandon SturgillBusiness Member
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Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
9y
@Matt Skog Thanks for the reply...I have done purchase money mortgages in the last year and acquired some rental properties...I guess my question is how do I structure when their is a lien?...free and clear is a piece of cake... ;)
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Brandon SturgillBusiness Member
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Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
9y
@Matt Skog forgot to say...I have never heard of a conventional lender participating in a deal where seller financing is involved?...what kind of lender are you using...lending with seller financing does not comply with FNMA guidelines for a sellable mortgage...I thought...
Cheers
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