All Forum Posts by: Jay Koch

Chris,

I see that your question has been out there for a month with no replies. I hope that this deal is still in the works. I just joined Bigger Pockets a couple of days ago. Otherwise I would have jumped on this issue sooner.

To specifically answer your question, one way to preserve cash flow is to extend the amortization period. You can have a 30 year amortization with a 10 year balloon.

For example, a $150K note at 7% for 10 years is about $1,740 per month. If you change the amortization to 30 years, the payment is $997.

The downside is that at the end of 10 years, that note still has a balance of nearly $129K. Let's hope that the value of the property has gone up so that you can refinance, or you would have sold it by then.

My other questions on the property: What is the existing loan on the property? Does the seller need all cash now? Would he/she carry some paper beyond the down payment amount? You might be able to structure some sort of deal with some owner financing.

Have fun...

jay

I think Obama's leadership skills are pretty good. He led an organization that beat the Clinton machine by creating a whole new way doing campaigns.

He inspired millions of us to get out and work to get him elected. There were more than twice as many people working on the Obama campaign than there are all of - ahem- Alaska.

BTW, in the picture that is my avatar, I am smiling because I have my arm around Michelle Obama. If you want to see me the whole picture, let me know!

Tim, you don't have to contribute to be in the "raffle" for inauguration tickets (although they DO encourage it) Why don't you sign up? It might be fun! :)

Hoo, Boy! Texas!

Yup, you gotta mind your Ps & Qs in Texas.

They have a law that says you must provide a year end statement that has more information than is required by the IRS. The IRS says that if you don't file Form 1098 in a timely manner the fine is $50. Texas law says that the penalty is $50 PER DAY!

The company I worked for got into a lawsuit because of this law. A sleazy lawyer found a couple to claim that they did not receive their statements two years in a row. On a house worth $50K, they sued for a quarter million dollars!

We eventually won the case because it turns out that the couple doesn't speak English and they had their nine year old daughter going through the mail determining which pieces of mail were important to read. Also, we had proof that we had sent the statements. But it cost nearly $60,000 to defend ourselves.

We shut down our El Paso office because it wasn't worth the misery.

Sorry. That got a little off topic, but mentioning Texas laws hit my hot button.

I echo Frank's advice about price. It's only one aspect of the deal.

Have fun...

jay

Dear SI,

Here is what we do in New Mexico, and I am sure that something similar can be done elsewhere. (Your attorney will let you know what you can do in your state.)

The instrument we use is a Real Estate Contract. It is similar to a Deed of Trust. Title does not change hands until the contract is paid off. The contract servicing agent holds two deeds in escrow. There is a warranty deed that will be released to the buyer when the contract is paid off. The second deed escrowed is a special warranty deed giving ownership back to the seller. This deed is released in event of default by the buyer.

The terms of an REC says that if the buyer is even one day late, the seller has the right to put the buyer "on demand." This means that the buyer must catch up on all payments, including attorney fees for the demand letter, within 30 days or the property goes back to the seller. No foreclosure. The escrow agent releases the deed, you record it, and the property is yours.

This is another reason to use a servicing agent as a disinterested third party between buyer and seller. The servicer can act as an escrow agent.

If you would like a copy of the Real Estate Contract form we use in New Mexico, send me a note. You can find my contact info in my profile.

Also, I am creating a school in which I teach owner finance concepts and techniques to people like you. Again, you can find info about the school in my profile.

Have fun...

jay

I spent 25 years in the business of servicing owner financed notes, so naturally, I think you should use a servicing company to have them take care of your notes. :) A professional servicer can collect late fees, calculate correct tax and insurance impound payments, pay the taxes and insurance, and make sure that everything is reported correctly to the IRS. Also, if there is a disinterested third party servicing the note, there are fewer disputes between buyer and seller about balances.

The company I used to work for is Weststar Escrow. (www.WestLoan.com) They have offices from New Mexico to Alaska.

For handling a few loans on your own, you might want to look at Note Smith (www.NoteSmith.com) It works well if you have fewer than a couple hundred accounts. Not only does it do a good job of calculating principal and interest and handling all of the monthly tasks, but it has the software to print the 1098 and 1099 statements required for the IRS.

jay