Seller Financing is Confusing Me..

8 Replies

I'm working on a situation where I physically cannot wholesale this deal at a profit, so I'm actively searching for other avenues...

APV: $125,000

Outstanding Mortgage: $100,000 (was a $200,000 loan)

Is there a way I can structure a deal with seller financing so the buyer I find would assume the remaining mortgage and pay a down payment of $10,000 ($5K to seller, $5K to me)? 

Everything I've read suggests that the buyer must pay off the mortgage upfront and then can implement a seller financing deal for the remainder of the purchase (if there is any). 

Apologies in advance if this has been covered - I haven't been able to find a direct answer.

Hey, 

@Todd C.   Why don't you arrange a Subject To takeover of the loan?  No one has to assume the loan, just takeover the payments.  You can assign that contract for your fee of $5K and also negotiate a cash payment to the seller of $5K.  So the new buyer takes over the payments of $100K, pays out in either a lump sum or over time the $5K each to you and the seller.

If you can get the lender to agree to have the buyer take over the loan, that is the safest option.  Having the majority of the down payment applied to the loan may help convince the lender to go that route if it is a possibility.  Then as mentioned you and the seller would be paid over time.

If it is subject to, I think the buyer should put less down, but pay you and the seller over time.  You should get paid before the seller to give them an incentive to keep paying the loan etc.  If the seller refinances the payment plans should be accelerated.

Updated over 3 years ago

This deal is too thin to wholesale. Unless you can buy it you want to pass.

@Micah Redden  that's essentially what I'm looking to do. How would you structure this? What are the pros/cons to both the seller and buyer in this type of transaction? Do buyers like to get involved with these? 

@Jesse T.  I'm assuming you suggested that this would be the safest option as the lender then wouldn't be able to call the loan to be paid in full? How would one structure this type of deal? I'm assuming it takes a lot more legwork than just having the buyer assume the seller's payments? 

 The above suggestion is clearly brokering a RE transaction.  Are you a licensed salesperson?

Above issue aside, this would put the seller in a horrible position. Several things can happen to the seller

What if the buyer defaults? Bank forcloses.

Hurts sellers credit.

Bank forecloses because of due on sale clause. Hurts sellers credit.

Seller tries to buy a new house but cannot qualify for a loan as they have an outstanding mortgage in their name.


Originally posted by @James Wise :

 The above suggestion is clearly brokering a RE transaction.  Are you a licensed salesperson?

Good point.  This "deal" is to thin, time to move on.  If it looks promising from a buy/hold point of view, try to line-up private funding to be the end buyer.

Could do a sandwich lease and option . Tricky but not impossible.  

As always there is risk across the board.  However, the current seller has more security. They still have the issue of qualifying for a new mortgage and having to qualify having both properties , unless they can show 2 years of being a landlord . If they can't show 2 years tax returns then they would have to qualify for both.

Why are they trying to sell? Are they about to lose the property or just want to sell?

Subject to existing finance is an option, however, there is risk involved there too. If a person wants to worry less about a due on sale clause. I heard putting a mortgage into a revocable trust for estate planning cannot create a due on sale. Once this happens you would change the beneficiary to the end buyer from the seller.

Maybe listen to Karen Rittenhouse's podcast #2 on sub to deals.

Also research Dodd Frank Act on here. If your going to seller finance to the owner occupied person you would want to find an attorney that understands this Act.

The situation is this. He owns a home and this was a rental property. His previous tenant moved out in November and he had another lined up to move in, however, there was a major leak in the kitchen that he doesn't want to deal with.

If you can get the lender to agree to have the buyer take over the loan, that is the safest option.

That's unlikely to happen.  That's a loan assumption and few loans are assumable.

With a subject to (i.e, purchase with the loan in place without informing the lender) then there is no way to eliminate the risk of the lender calling the loan due.  None.  Period.

I heard putting a mortgage into a revocable trust for estate planning cannot create a due on sale. Once this happens you would change the beneficiary to the end buyer from the seller.

True that putting a property in a trust for estate planning purposes does not violation the due on sale clause.  Changing the beneficiary of the trust does.  At best, this technique hides what you've done.

$110K (loan balance plus the $10K you want) puts this at 88%.  Unlikely you'll ever wholesale a deal like that.  That's just way to thin for most investors.  Impossible to make money for a fix and flipper with a deal like that.  Might work for a buy and hold investor, but then that landlord is taking on the risk of a subject to deal for a not-very-good deal.

If you're going to try sandwich lease options to owner occupants, spend some time understanding Dodd-Frank and the SAFE act and the implications of that.  I'm not an attorney.  My reading is if you do one deal like this in 12 months, you're exempt.  Do two or three and you have some compliance requirements.  Do more than three and you must be fully compliant.  Its a can of worms.

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