I have a seller who owns his home outright. He wants $190,000, $10,000 down, and we can get away with monthly payments of $900. (He is renting at a really low rate right now). He will carry for 2-3 years. If we get it under contract, get all the proper paperwork with him filled out, he transfers the deed and puts a lien on the property, can we turn and sell the property to another buyer as an owner carry?
We would sell it for $220,000, $15,000 down, and $1200 monthly payment on it. We transfer the deed, put a second lien on the property, and have a 2 year bubble payment so they will need to refinance.
I am not asking for legal advice, but I want to know if this is possible and "legal" (We will run our paperwork through a Real Estate Attorney).
Likely any mortgage the seller gives you will have a due on sale clause, just like institutional mortgages. Of course, an individual will certainly notice when you sell the property....title changes, insurance changes, etc. and could call the loan due. It might be a bit optimistic to be able to raise the price $30k with no improvements.
This common concept is not workable under Dodd-Frank if applicable, under RESPA, under unilateral contract law, which is what a financing agreement is nor is there a likelihood you'd get a qualified buyer through with a 2 year balloon. Since your seller is renting the home they will have the same issues, so you're compounding your potential of legal violations causing the entire arrangement to be tainted.
I'd suggest too that you dig deeper in title and the name(s) of your seller as to doing the old finance with a small down, collect payments, foreclose rinse and repeat, illegal practice now, thank God!
Unless you have or will have cash to payoff a mortgage or you're going to sell for cash, you shouldn't ever get into a two year balloon as a buyer and never create a loan for another buyer unless they are in that same position. 2 years is 2 short.
Doing any wrap where you charge a higher rate than you are paying is very difficult, most attorneys screw it up, if you have usury laws and in giving APR disclosures you're looking at weighted average interest rate computations based on all amounts financed including the underlying mortgage, if it is an ARM loan, the variables will be to great to be accurate under RESPA, if you're off one tenth of one percent you might as well not even give financing disclosures. Those who suggest this don't have a clue what they are talking about. Just don't add interest on top of another mortgage without professional financing advice, not legal advice from an attorney but financing compliance guidance. And, very few RMLOs on the street today are qualified to do that.
To do a wrap and sell again you'd need the original lender's consent, not likely in your example.
Buy it with a 5 year balloon, you could lease it, you could give an option to buy but don't finance the option contract and charge close to market rents without any rent credits applied, is my suggestion.
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