Baltimore, MD · Member since 2018 · 23 posts · 4 votes
Hi,
In the past, I've explored the possibility of selling homes with seller financing. To my great dismay, I discovered that if you do this too frequently, you'll be classified as a dealer. As such, you will have to pay taxes on the entirety of the note up front. Obviously, that would be a big inconvenience.
I'm just exploring my options, and I had an idea. What if I sold a home, and then gave someone an unsecured private loan? If they stop making payments, I can then put a judgment on the house.
I'm not saying I'm going to pursue this option. But, I'm just wondering if it would work. If I do this, will I be taxed on the money I make over the course of the year, as opposed to being taxed on the entirety of a note up front?
Yeah, this is not ideal. I'm just brainstorming my options. Though, if they got a mortgage, wouldn't the lender be required to pay off my lien before the DOT is recorded?
In your example, you don’t have a “lien”. You have an unsecured note. How would another lender even know about it? If it’s unsecured, it’s essentially a piece of paper sitting in your file cabinet at home.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
7y
If you did an unsecured note, the buyer could take out another mortgage/lien on the property, or even sell it. If that happened, and then they stopped paying, what would you do then?
Best case scenario, the property is already encumbered and you end up in a lower lien priority position. Worst case scenario is the house is sold and you have nothing to even file your lien against.
Baltimore, MD · Member since 2018 · 23 posts · 4 votes
7y
@Eamonn McElroy
None. I'm just figuring out my options.
@Kyle J.
Yeah, this is not ideal. I'm just brainstorming my options. Though, if they got a mortgage, wouldn't the lender be required to pay off my lien before the DOT is recorded?
I don’t do seller financing to owner occupied properties after the DoddFrank bill. Respa requirements and licensing is a hassle and also limits how many you can do. Check federal and state laws on lending and licensing. If you do lending to businesses much less requirements.
Unsecured loans think of yourself as being a credit card card company. lending club does it for good credit customers.
Yeah, this is not ideal. I'm just brainstorming my options. Though, if they got a mortgage, wouldn't the lender be required to pay off my lien before the DOT is recorded?
In your example, you don’t have a “lien”. You have an unsecured note. How would another lender even know about it? If it’s unsecured, it’s essentially a piece of paper sitting in your file cabinet at home.
The reason I asked is that I suspected you're problem solving for a problem you don't have and probably won't have in the next 2-3 years.
Don't be afraid to dive in. Bring on a solid CPA and attorney as external partners and let them advise you and proactively plan around potential obstacles like this.
Don't get bogged down in the details initially (analysis paralysis).