Have you used a Performance Deed

Creative Real Estate Financing
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Have you used a Performance Deed

Robert CliffordPro Member
Rental Property Investor · Greenville, SC · Member since 2017 · 40 posts · 19 votes

I was approached by a wholesaler who wants to buy one of my Airbnb properties.  I've bought with seller financing, but haven't been on this side of the transaction.  The seller is going to give me a note above the amount I still owe on the mortgage.  He said we would utilize a payment service to ensure payments are made, and also a "performance deed", so that if they stop paying I could reclaim the property without going through a year-long foreclosure process.  The property is in South Carolina, and I've talked to one attorney who said run, and I've reached out to a second to ask about this type of deed.  

If you have experience with this, please let me know or point me in a good direction.  I'm looking for a way to make it happen, without exposing myself to undue risk.  

Thanks

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Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
3y

A performance deed -- essentially a substitute for a deed in lieu of foreclosure -- causes problems with title insurance on a subsequent sale because the deed was not executed after default and good faith negotiation with the lender (the typical DIL scenario). 

Pocket deeds such as this violate the borrower's right/equity of redemption and to have a commercially reasonable foreclosure sale. You improve the property considerably then miss a payment... boom... deed recorded and you've been robbed of your equity.

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  • Account Closed
    Real Estate Agent · Greenville, SC · Member since 2014 · 86 posts · 30 votes
    5y

    @Robert Clifford

    Whats the price point and condition? Im in Greenville. My partner and I are looking for an investment property. We would use hard money and close very quickly.

    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    5y

    Never heard of a performance deed.

    Maybe have them sign a Quit Claim deed to you that your attorney holds in case they stop paying?

    Where is the property? I might be interested in paying all cash for it.

    0Reply
  • Troy GandeeBusiness Member
    Real Estate Broker · Charleston, SC · Member since 2013 · 795 posts · 454 votes
    5y

    @Robert Clifford I've also never heard of a performance deal. I'm honestly not even sure that's a real thing. Are you saying you're going to seller finance it to the wholesaler or is the wholesaler going to buy it outright with cash or new mortgage at some point? If they plan to buy it outright, you could just do a lease option, possibly. If they want to seller finance it from you, that would be difficult since you're already the mortgagor on the 1st seller finance arrangement. 

    0Reply
  • Rick Pozos
    Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
    5y

    It sounds like someone is trying to be creative. You can't blame them for trying. If everything is working for you, why even entertain the offer. They are trying to do a wrap. Plain and simple. They probably dont want to put much money as a down payment, right?

    They probably throw out this option for everyone to see who bites. If you don't NEED to sell, why would you even think about this type of financing for the sale of the property??

    I also get cards and letters every few days wanting to buy my notes and properties that I own. As soon as I see what they are, they go right in the trash. If I had to sell to someone who was marketing to me, I would keep reading. I don't, so in the trash they go.

    1Reply
  • Robert CliffordPro Member
    OP
    Rental Property Investor · Greenville, SC · Member since 2017 · 40 posts · 19 votes
    5y

    @Matthew A Rodriguez I’ll send a PM.

    1Reply
  • Robert CliffordPro Member
    OP
    Rental Property Investor · Greenville, SC · Member since 2017 · 40 posts · 19 votes
    5y

    @John Underwood. New to me too. I did some research and inthink maybe it’s called a deed of trust. Still no word if allowed in SC. I’ll send you a PM.

    1Reply
  • Robert CliffordPro Member
    OP
    Rental Property Investor · Greenville, SC · Member since 2017 · 40 posts · 19 votes
    5y

    @Troy Gandee. Lease option is my fall back. I found a bank that will give me a loan against the note. I want my cash out to put into something new. I don’t want to take in undue risk, but this transaction could teach me about some new options.

    1Reply
  • Dee B.
    Fort Worth, TX · Member since 2018 · 11 posts · 9 votes
    3y

    I know this is late but a performance deed is normally used in a creative financing scenario when buying real estate. I am a newbie to this but I will try to explain it the best I can. You will see this in seller finance or subject to deals where a seller does not want to go through a long foreclosure process if something happens to the buyer(death, abducted by aliens). The buyer can add a performance deed to the transaction which basically states that if the buyer defaults on the loan, the property is transferred back to the seller without a long and costly foreclosure process. 

    4Reply
  • Account Closed
    Rental Property Investor · Savannah, GA · Member since 2014 · 298 posts · 67 votes
    3y

    A performance deed is a real thing and would provide you with the protection you desire.

    1Reply
  • Randy Rodenhouse
    Investor · Charleston, SC · Member since 2011 · 606 posts · 413 votes
    3y

    As a person who has purchased hundreds of mortgage notes (non-performing and performing) and done many seller finance deals let me tell you if this was the case wouldn't all banks require the buyer (their borrower) to get such a deed so that if their borrowers do not pay then they don't have to go through foreclosure.  Unfortunately there is a thing called state law.  Your attorney is correct.  

    If you sell a property with owner financing and you get a mortgage and a note from the buyer and you deed the property to the seller then the only way you can get that property back (if not paying, etc) is to foreclose and in the state of SC it is a judicial foreclosure.  I am in the process of doing a foreclosure in SC right now and it is long and pretty expensive (this was a NPL I purchased).  For me it is not a big deal but for some it would be devastating not to collect payments for 12 + months if you had not planned for it.  

    2Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    3y

    A performance deed -- essentially a substitute for a deed in lieu of foreclosure -- causes problems with title insurance on a subsequent sale because the deed was not executed after default and good faith negotiation with the lender (the typical DIL scenario). 

    Pocket deeds such as this violate the borrower's right/equity of redemption and to have a commercially reasonable foreclosure sale. You improve the property considerably then miss a payment... boom... deed recorded and you've been robbed of your equity.

    Gimer Law516 Reviews
    WebsiteView Page
    6Reply
  • Chad U.
    Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
    3y

    The other option would be a contract for deed on a wrap in second position.

    0Reply
  • Alex Garcia
    Member since 2019 · 1 post · 0 votes
    3y

    I guess it’s verte two years later than never

    Based on my “research” that includes YouTube videos and chat GPT this is done via a trust, in which the lender is the beneficiary and the borrower is the trustor and the title company or lawyer is the trustee. The buyer transfers title to the trustee who holds it as security for the loan.

    this is what Chat GPT said about it, of course ask if this would have to be corroborated with an attorney in your particular estate:


    In Texas, a performance deed typically refers to a type of real estate contract known as a "Deed of Trust." It is a legal document that is used in real estate transactions involving a lender, borrower (property owner), and a trustee. Here's how it works:

    1. **Parties Involved:**
    - **Borrower (Trustor):** This is the property owner who is borrowing money to purchase or refinance a property.
    - **Lender (Beneficiary):** The lender is the financial institution or individual providing the loan to the borrower.
    - **Trustee:** The trustee is typically a neutral third party (often a title company or attorney) appointed to oversee the transaction and hold the legal title to the property until the loan is repaid.

    2. **Loan Agreement:** The borrower and lender enter into a loan agreement, which outlines the terms and conditions of the loan, including the loan amount, interest rate, repayment schedule, and any other relevant terms.

    3. **Deed of Trust:** In a Deed of Trust, the borrower (trustor) conveys legal title to the property to the trustee as security for the loan. This means that the trustee holds the property in trust until the loan is paid off. If the borrower defaults on the loan, the trustee can initiate the foreclosure process on behalf of the lender.

    4. **Promissory Note:** Along with the Deed of Trust, the borrower signs a promissory note, which is a legal document that contains the borrower's promise to repay the loan according to the terms specified in the loan agreement.

    5. **Recordation:** The Deed of Trust is recorded with the county clerk's office in the county where the property is located. This public record ensures that all parties' interests are documented and protected.

    6. **Repayment:** The borrower makes regular payments to the lender according to the terms of the loan agreement. These payments typically include both principal and interest.

    7. **Default and Foreclosure:** If the borrower fails to make payments as agreed upon in the loan agreement, the lender can initiate foreclosure proceedings through the trustee. Foreclosure is a legal process that allows the lender to take possession of the property and sell it to recover the outstanding loan balance.

    8. **Release of Deed of Trust:** Once the borrower has fully repaid the loan, the lender will issue a "Release of Deed of Trust," which is recorded with the county clerk's office. This document officially releases the property from the lien created by the Deed of Trust, and the borrower regains full ownership of the property.

    It's important to note that the specific terms and legal requirements for Deeds of Trust can vary, and it's advisable to consult with an attorney or a real estate professional in Texas to ensure that all aspects of the transaction are properly handled and in compliance with state and local laws.


    0Reply
  • Ugin Rapoport
    Rental Property Investor · Dallas, TX · Member since 2016 · 14 posts · 3 votes
    2y

    Pace Morby can answer this one.

    0Reply
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