I am doing some commercial deals and the seller will be carrying about 5% in 2nd position, is there any risk by not telling the bank or lender about this? Some lenders have various rules and it complicates deals. I am considering not
Seller would be OK to take the lien after the deal is closed. Please inform and guide
I think its a possibility. It just depends how you document the transaction. If you are making monthly installment payments for their " preferred equity " and it looks like a loan, its really a loan........
I would look at giving them an Option for the equity which allows them the right to purchase the property back and in that Option, give yourself an ample amount of time to buy their Option back and make sure they CAN'T exercise the Option during that period of time.
But again, if you are making consistent monthly payments of equal dollar amounts to them, it still looks like a loan.
@Derek, What if the equity is injected (there is no silent seller carry as per bank guidelines) and borrower gives a personal loan after closing and uses a PG as collateral for that personal loan? Ive been told there is no issue with that. Whats your opinion?
@Derek Dombeck Would lenders be open to something like a 70% LTV with a 30% seller carry with the 30% being a 48-60 month balloon payment? Or what would be the minimum a lender would like to see from me in the deal? I have seller deals I could close today if I could stay below 5% out of pocket to maintain a decent reserve.
@Jason Dillard Sellers don’t want to put any money in. I have the cash Equity to bring in and pay to seller. Seller pays it back after closing and it’s a personal loan. That is perfectly legal and ideal
@Khizer Husain doesn’t require seller to spend money. Close same day. It gives seller real collateral. If you have a place for a first, then you may get seller to take lower rate and bigger paper. Plus, next step is using their paper in another deal, discount, or pay off with created paper(that’s cost you way less). Chess not checkers.