I received a response from a yellow letter I sent to a probate lead this morning. The daughter says they want to sell the house and would consider financing the sale (the home is free and clear).
My question is when structuring an owner finance sale on a home in probate would we need to have an MLO involved to satisfy the SAFE Act or is this an exempt situation because it is the decedents immediate family?
With respect to the disrespectful Mr. Gulley, I do not drink however I DO believe my 1,800 + probate deals over twenty five years as a probate specialist gives me some level of expertise to base my experience on.
In order to buy a property from the heirs of an estate using seller or carry back financing, as it may be called, there has to be a way to pass title, preferably insurable, marketable title voluntarily, in order to negotiate a purchase money note for any portion of the equity purchased.
The reason a Purchase Money Note, as a debt instrument is preferable is because of the possibility of a seller-come-creditor having some ability to have recourse on the borrower, where it it is argued that obligation is a promise to pay by the purchaser.
My point about this is really about using language in the note that makes it clear that this is not a loan of money but rather the terms of the sale of real property. Avoid language that the buyer "promises to pay" and similar verbiage.
As for the ability to purchase prior to the close of probate, this really depends on the state and the powers granted the PR (personal representative) and the point of time you, as buyer, wish to complete the transfer of title.
For instance, in my state, CA, a formal probate can be avoided if the total gross value of the estate is $150,000 or less. Unfortunately, using this method has limits because there really are no interim powers granted the PR to sell or encumber. Basically, the PR as seller needs to complete the summary probate, then sell. I've acquired many estate properties via assignment and acted as PR then distributed assets (real estate to m, Purchase Money Note + other consideration to assignors) but then I get stuck with any fiduciary baggage that crops up.
On the other hand, it may be necessary to obtain a court order confining the sale. In my state this may be the case when the PR has limited powers or full powers but lack of agreement among heirs/beneficiaries. In this case, your deal will be under a higher level if scrutiny and seller financing is a great way to show a higher sale price, if required.
Josh, you ask darn good questions. Your posts are some of the best, most cogent that I've read here. I would encourage you to continue to do exactly what you are doing. Invite plenty of comments however be careful who you listen to. Ask yourself if the poster is trying to helpful to you or merely has an obsession for commentary. Looking forward to following your sagacious marketing efforts.
Nope. MLO is largely intended to protect the buyer. You, as buyer, are not as concerned about seller misleading you. Engineer for future negotiation opportunities.
Deal needs to cash flow.
Use "purchase money notes"
Consider breaking up into two carry back notes, in case they want to sell or liquidate for cash prior to full term. You ought to be on the ready, for a discount.
The real money is made on the back end. Don't forget this important part.
Starbucks gift cards gladly accepted.
Rick Harmon Thanks for the input.
Is there any difference between a purchase money note and a seller finance note? I have always been under the impression they are one in the same when dealing with a home that is free and clear.
I have no idea what Rick is drinking based on your post!
If it's in probate the court can approve the sale, no need for the SAFE Act as the court could order the arrangement.
If it's out of probate, most likely the sale would fall under the exemption for the number sold by the seller within one year, check your state for that exemption.
Luck you, it's unusual to get seller financing out of probate court, the estate must have cash and you have no mortgage either....perfect!
I do see where Rick is going, but don't get screwy here, it's in probate or probably under the consent of a attorney, find out more before getting giddy and silly.....
With respect to the disrespectful Mr. Gulley, I do not drink however I DO believe my 1,800 + probate deals over twenty five years as a probate specialist gives me some level of expertise to base my experience on.
In order to buy a property from the heirs of an estate using seller or carry back financing, as it may be called, there has to be a way to pass title, preferably insurable, marketable title voluntarily, in order to negotiate a purchase money note for any portion of the equity purchased.
The reason a Purchase Money Note, as a debt instrument is preferable is because of the possibility of a seller-come-creditor having some ability to have recourse on the borrower, where it it is argued that obligation is a promise to pay by the purchaser.
My point about this is really about using language in the note that makes it clear that this is not a loan of money but rather the terms of the sale of real property. Avoid language that the buyer "promises to pay" and similar verbiage.
As for the ability to purchase prior to the close of probate, this really depends on the state and the powers granted the PR (personal representative) and the point of time you, as buyer, wish to complete the transfer of title.
For instance, in my state, CA, a formal probate can be avoided if the total gross value of the estate is $150,000 or less. Unfortunately, using this method has limits because there really are no interim powers granted the PR to sell or encumber. Basically, the PR as seller needs to complete the summary probate, then sell. I've acquired many estate properties via assignment and acted as PR then distributed assets (real estate to m, Purchase Money Note + other consideration to assignors) but then I get stuck with any fiduciary baggage that crops up.
On the other hand, it may be necessary to obtain a court order confining the sale. In my state this may be the case when the PR has limited powers or full powers but lack of agreement among heirs/beneficiaries. In this case, your deal will be under a higher level if scrutiny and seller financing is a great way to show a higher sale price, if required.
Josh, you ask darn good questions. Your posts are some of the best, most cogent that I've read here. I would encourage you to continue to do exactly what you are doing. Invite plenty of comments however be careful who you listen to. Ask yourself if the poster is trying to helpful to you or merely has an obsession for commentary. Looking forward to following your sagacious marketing efforts.
Can't take a joke Rick?
It was your off the wall comments hinting at what you wanted to talk about rather than just addressing the question, ;)
I think Rick gave some good insight with probate.
The SAFE Act, somthing that Rick has stated he's not concerned with, will usually not be a concern for the buyer, but is as a seller or assigning, buying or selling notes.
I assure you, I've done more seller financing deals and bought, sold and serviced more than any big hat with no cattle and I too suggest you watch who you listen to.
Notes can be assigned without recourse if that is the plan, the future borrower can sign with recourse, that blows that purchase money note stuff out of the water and avoiding the promise to pay is NOT a ploy to employ.
I'd think if someone wants to discuss strategies and notes, assignments, recourse and surrounding issues, such should be in another thread as it's off topic here as to the original question posted.
I really don't like saying things over and over, which is what happens when we get off topic and people can't find the posts due to the original topic being something else.
Rick, I was joking, lighten up.
@Bill Gulley - thank you, point well taken. Perhaps you've seen my ranch business card with my no-livestock policy, "Big Hat, No Cattle" motto paraphrasing the Texas' All Hat -No Cattle term.
Josh, if your role is merely as buyer, I'd focus on the deal at hand. Make the deal, tied it up and close when the pieces come together. If there's an attorney representing the seller, ask for a "comfort letter" that addresses concerns that you or your title company may have.
Josh Rogan: if you have an estate willing to make a deal with seller-financing, focus on negotiating the price and terms and getting the property under contract. At this point you do not need to worry about Safe Act (as you are not a seller) or the probate courts. You do need to make sure whomever you are working with is someone who is empowered to legally enter into a contract. The heirs may be interested in selling after they inherit, they may need to sell now to satisfy debts. There are all kinds of variables. But those don't matter as much as negotiating a deal that works for you and the estate.
I am currently the administrator of one estate that I opened over five years ago. I bought out the heirs, became the administrator and opened probate in order to transfer the real property. The deal wasn't a great one as there were many complications, a crashing real estate market and then some unknown creditors appeared. In order to make the deal profitable, I sold the property to one of my landlord buyers with a down payment, and carried back the rest at 8%, five year terms. I had what is called "full powers" and sold the property without the need for court approval. The interest on that note saved that deal.
If you can get to a price and terms that works, the probate details can then be clarified. Please post back and let us know about the smoking deal you negotiate!
Thanks K. Marie Poe, Bill Gulley, and Rick Harmon.
I am in the process of trying to work out a deal with the executor. One daughter is currently living in the house and is interested in staying. Im not sure how I feel about that one.
What have been your experiences, if any, in allowing family members of the estate to remain as tenants?
Plenty of plays remain. Most buyers would never even consider leaving the other heir in the property after purchasing. That's a problem for a seller. Problems are opportunities to profit. Never forget this.
Question is: how do you monetize benefits if ownership if the one heir remains in possession?
Is the Daughter cooperative or not? Does she have an income or is she a semi-related interloper baby-popping sponge? I've got checkboxes for all these scenarios on my forms.
Just a few thoughts: you could rent or lease to her, buy the others' shares without hers at big discount, give her rental credit if X months/weeks, buy with note with payment start date beginning after possession or rent paid, etc.
She is the gift in this formula that will help your negotiating, both now and later. An early Valentine's Day gift.
You can certainly allow her to remain, free time up front is okay, but I'd set up a lease not more than a year and see how it goes. Don't discount rents long term, as it plays on your ability to refinance if needed. Shoot for 125% debt coverage, PITI minimum that may still be under market rents.
OTH, a lower price can be used offset with a longer term lease, keep in mind cash flow.
What are your intentions? Flip after 1, 2, 7, 10 years, keep it, what? Build the deal to your plan. Do you have a plan or is this just a deal and then go with the flow?
Can you make the promissory note assumable? Can you defer average interest yields over the term with lower initial interest rates, entry rates... these are pluses that you might ask for keeping her in there.
;)
@josh r
This thread is old, but interested in outcome.