Partial seller financing - who gets first lien?

Question

Greetings you fantastic BP people!

Quick question about partial seller financing... if you get a seller to do seller financing for ~20% of the purchase price, who gets first lien? The bank or the seller doing ~20% 'seller financing'?

Thanks for all you input!

Jay

Eric Mayer · Answer

Anytime! I wish I learned about the power of owner financing before I jumped in. Now I’m selling off my conventional financed deals to buy owner financed deals. Can get twice the doors if you can keep the down payments low. Best of luck!

Jayson Wolfe · Answer

@Eric Mayer Thanks! Yeah, I kinda figured a bit risky for the seller but was just wondering from someone who has actually done it before. I'm a newbie (very new, not even one deal yet) but wanted to poke around at how it actually might work with the legal and risk. Thanks!

~Jay

Eric Mayer · Answer

Account Closed Are you saying there is a bank that will finance his loan without holding the note in first position? I know you have a lot of experience, but respectfully disagree.

Eric Mayer · Answer

The bank gets first position. I recently pulled this off with an 8 unit, but it’s risky for the seller.

Account Closed · Answer

No. That isn't what I said or meant. ;-) and yes, once upon a time I was a loan officer.

In his question the OP is unclear whether it is taking over existing financing with seller carry back or if it is seller getting new financing with seller carry back or if it is buyer getting new financing with seller carry back. I've done it each of those ways. There are subtle differences.

On an existing loan, the bank would be in 1st position because that loan was originated prior to the seller financing.

If you mean pay off the seller's existing loan, take out new financing in the buyer's name and the seller do a 20% carry back, then the bank would be in 1st and if the seller carry back was recorded then the carry back would be in 2nd.

To your point: If a house is free and clear and valued at $200,000 and the seller does a *proper* seller financing with title, escrow, recording etc for $100,000 (or 50% LTV), then a bank "may" do a 2nd (be in 2nd position) up to maybe 70% to 80% LTV or about $140,000 to $160,000 total LTV (seller financing + new bank financing) which would put $40,000 to $60,000 into the pocket of the homeowner. Usually it is a small community bank that knows the borrower, but I've seen credit unions, which are not technically banks, do that. It gets into the weeds, but that is the general idea. The bank records 2nd in this case because the seller is in 1st.

Banks will record the DOT (Deed of Trust)/Mortgage immediately. Some private lenders never record at all. (they should but sometimes they don't know to) LOC's, HELOC's, 2nds, Hud Modification liens, mechanics liens, judgments, IRS liens, property tax liens, state tax liens, unemployment liens, child support liens and so on start with the notion of who filed first. Some liens have priority regardless of when the lien was filed but that does not apply to banks which is the original question.

Lots of case law in all states on lenders/liens suing each other over who is entitled to what based on what was filed when and particularly in bankruptcies when it's unlikely anybody to everybody will be taking a haircut (not getting the amount they lent out.)

Account Closed · Answer

In almost all jurisdictions, it's FIFO (whoever records first). I specialize in Creative Financing, including seller financing, subject to, wraps, lease options, land contracts, trading speed boats for equity, you name it (if it is Safe and Legal) I've probably done it. There are ways to do these that are Safe and give great cash flow. I'd recommend working with someone who has experience. It an be confusing at first. As an example of the types of things that can be done:

3 Ways to Wealth in Real Estate – Fix & Flip, Buy & Hold, Turnkey (Cash flow) – Here’s How

https://www.biggerpockets.com/forums/311/topics/780022-3-ways-to-wealth-in-real-estate-cashflow-flip-hold-here-s-how

I explain a transaction in greater detail at:

https://www.biggerpockets.com/...

Joe Villeneuve · Answer

Nobody.  You're going to have a hard time getting the bank to lend you any money if there is already a lien on the property, and/or if the DP isn't cash...like this.  If you don't have any cash in the deal, you have nothing at risk, which makes you a big risk to the bank.

Partial seller financing - who gets first lien?

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