HELP!! How to Structure part finance/part seller buyback
We are selling a house with part loan, part contract /seller buyback.
Original PA sale price of $225,000 with buyer securing investment financing for $157,500 and seller financing the remainder at 8% with a 5 year balloon. Addendum states: - Buyer to provide financing for 70%. $225 X 70% =$157,500. This mortgage will be the 1st lien on the property, - Seller to finance the remaining 30% $225 X 30%= $67,500 at 8% interest with a 5 year balloon. This will be the carry back mortgage and 2nd position. - Both the seller and the buyer will be on the Deed.
I don't know that I want 2nd position or to co-own.
My attorney wrote: it is my understanding that the lender was going to require seller to secure their interest with a second position mortgage. Seller did not feel that a second position mortgage adequately protected her.
My proposal is that we have two (2) transactions.
The first transaction will be for an undivided 7/10 interest in the property and the sale price will be $157,500.
The second transaction will be a sale on contract of the remaining undivided 3/10 interest in the property for the remaining $67,500. The real estate contract will be a 30 year amortization aat 8% interest, compounding monthly, with a balloon at the end of year five.
Stay with me--this gets interesting...& confusing:
Sellers reply: I respectfully suggest that the premise of not being protected is incorrect. Please explain the vulnerability. Furthermore, if the contract for the 30% is recorded after the 70% it is still in second position. Honestly, I'm not sure what problem we are trying to solve with this approach. If the sellers want to negate the offer I will honor that. Not interested in a monthly compounding for a seller carryback.** (Isn't that what making monthly payments on seller buyback is?)
Atty: The mortgage would be unable to encumber the 30% interest because you will not be the legal owner of the 30% thereby you are unable to encumber the 30% of the interest. So, in the event of a foreclosure, the lender would only be able to get an in-rem judgment against 70% of the property.
Buyer: Sr or Jr position is dictated by time of filing. Your suggestion does not provide any greater protection than the proposed transaction. The part of foreclosure that we tend to overlook is the fact that second position has the right to payoff/acquire the first and takeover the property.** (How so?) So you are offering the seller an unsecured position... Much higher risk... What I'm proposing and the rest of the investment world is a secured asset-based investment. It seems like we are at an impasse. Let me know how we can move forward that creates a win-win.
Atty: Nope. Seller would have a recorded installment contract that would afford the right to forfeit the contract in the event you defaulted on payment.
Buyer: Thank you for making my point... that is a much higher risk and seller has no rights to the asset that is being foreclosed.
Atty asks for my input. Me: With addendum being agreed on, isn't that what the proposal is stating?-1st PA at 157500 with buyer getting mortgage in 1st position.-Contract for the remaining 67500 at 8% interest with a 5 yr balloon. (Pmts to be deposited directly into sellers account monthly, per realtor.)-Both the seller and the buyer will be on the Deed. (Buyer at 70% and seller at 30%). I ask buyer for how he wants the contract to read, explain statements, etc. He does not respond to any of my questions about his statements, or how he would write it.
Buyer response: I am not an attorney. I am not offering you legal advice. The issue from my perspective is that the contract is unsecured. If the contract exists it is not a mortgage with has "actionable" steps for recovery. If the first position forecloses as a second position lien holder you have the options for recovery. I'm not interested in offering you an unsecured contract for the sale of the property.** (Is a contract for property unsecured?)
Atty: It is clear that you are not interested in the proposal. That is fine. Please stop attempting to suggest that the seller would be without recourse in the event you default on the installment contract.
Buyer: I am not interested in a non-colateralized transaction. I will share this point as my closing comment. I have never had a seller opt for a unsecured installment contract over a deed/mortgage with promissory note.
At this point it looks like this deal is now a no deal. We never had a 2nd contract offered to cover the addendum AND have not been provided with options for one.
AM I GETTING GASLIGHTED? HOW SHOULD THIS BE STRUCTURED SO I RETAIN THE RIGHT TO MY PROPERTY DURING 5 YRS IF BUYER DEFAULTS ON A) HIS MORTGAGE B) TI & C) OUR PMT?
If you've made it here, ty for readying this!
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