All Forum Posts by: Raquel Baranow

Quote from @Raquel Baranow:

Quote from @Patrick Roberts:

Quote from @Raquel Baranow:

Quote from @Patrick Roberts:

Oh boy. Based on the math and what's in the picture, this looks like a partially amortizing loan. On 6/1/2035, there will be a balloon payment of $103,863 using the figures in the addendum to calculate. If this loan was to fully amortize given a starting balance of $165k, note rate of 3.0%, and monthly P&I payments of $850.00, then it would take approx 22 years to pay off. This addendum shows that the loan terms out in 2035, long before 22 years. 

I would get a copy of the note and the deed of trust to get the exact figures and agreement. This is just the addendum; the note will detail the actual terms of the loan.

 Right, in ends in 2035 and says only the “principal balance” is due, not the accrued interest. Is this some kind of trick. The buyer made this contract, I’m the seller.

 Thanks for mentioning this. Do not seller-finance this at 3%. If for some reason you need to liquidate the note to generate some cash in the future, you will take a massive discount on the value of the note and would only get pennies on the dollar for it. Seller financing should bring above-market rates, not below-market rates. If the buyer wants prime rates, they can go to a bank. 

I dont know if its a trick. I think the limited verbiage on the form may be creating part of the confusion. If the loan amortizes over ten years, then the balance at year ten should be $0. If the loan has a ten year maturity but amortizes over a longer period, say 25 years, then part of the loan will be unpaid at the end of the ten years. This leftover amount is the balloon payment - the amount due at the end of ten years is the remaining principal balance that has not be paid by the buyer yet. This second scenario is very common in commercial lending.

The buyer should be paying the accrued interest in monthly installments with the amount of interest owed based on the principal balance in each corresponding month. Do not accept or agree to have interest accrue and be paid at the maturity. If the loan is amortizing, then the buyer should also be making payments toward the principal each month in addition to the interest payment. The $850/month listed on the form should not include escrow/impound for taxes and insurance - that should be a separate amount because it will change over time - likely every year. 

If youre the seller, do not let the buyer draft the documents or dictate the terms. Have an attorney who represents your interests draft the documents on your behalf and provide advice on the terms you negotiate with the seller. 

Lastly, I'd recommend requiring a downpayment of at least 10%. Default rates are inversely related to downpayment - the lower the downpayment, the higher the probability of default. 

This is literally a fire sale, idiot tenant lit candle, set mattress on fire but managed to drag mattress outside; there is smoke damage. I didn’t have insurance. Rent was only $1000 per month. House before fire worth maybe $235k.

Without listing this, I received many low-ball bids from “we buy your house” guys/gals (they call me all the time for properties I own) with “creative” financing: no interest seller carryback, memorandums, reassignments, etc.. I was afraid this was another crooked contract.

House is now sold with the same terms but with “unpaid principal, accrued late penalties and all accrued interest due and payable … in 2035.”

 Ultimately, it's up to you on how much risk you want to take. Just know that if you have a 3% note with $0 down from the seller and decide to sell it later for cash, I'd be surprised if you were able to get even 50% of the unpaid balance. If you move forward with these terms, the only way get paid on this will be to hold it to maturity. 

At any rate, the unpaid principal balance due at the maturity will be a function of the interest rate, the payment amount, and the starting balance. 

What were the cash offers you were getting?

 Thanks for mentioning this. Do not seller-finance this at 3%. If for some reason you need to liquidate the note to generate some cash in the future, you will take a massive discount on the value of the note and would only get pennies on the dollar for it. Seller financing should bring above-market rates, not below-market rates. If the buyer wants prime rates, they can go to a bank. 

I dont know if its a trick. I think the limited verbiage on the form may be creating part of the confusion. If the loan amortizes over ten years, then the balance at year ten should be $0. If the loan has a ten year maturity but amortizes over a longer period, say 25 years, then part of the loan will be unpaid at the end of the ten years. This leftover amount is the balloon payment - the amount due at the end of ten years is the remaining principal balance that has not be paid by the buyer yet. This second scenario is very common in commercial lending.

The buyer should be paying the accrued interest in monthly installments with the amount of interest owed based on the principal balance in each corresponding month. Do not accept or agree to have interest accrue and be paid at the maturity. If the loan is amortizing, then the buyer should also be making payments toward the principal each month in addition to the interest payment. The $850/month listed on the form should not include escrow/impound for taxes and insurance - that should be a separate amount because it will change over time - likely every year. 

If youre the seller, do not let the buyer draft the documents or dictate the terms. Have an attorney who represents your interests draft the documents on your behalf and provide advice on the terms you negotiate with the seller. 

Lastly, I'd recommend requiring a downpayment of at least 10%. Default rates are inversely related to downpayment - the lower the downpayment, the higher the probability of default. 

Oh boy. Based on the math and what's in the picture, this looks like a partially amortizing loan. On 6/1/2035, there will be a balloon payment of $103,863 using the figures in the addendum to calculate. If this loan was to fully amortize given a starting balance of $165k, note rate of 3.0%, and monthly P&I payments of $850.00, then it would take approx 22 years to pay off. This addendum shows that the loan terms out in 2035, long before 22 years. 

I would get a copy of the note and the deed of trust to get the exact figures and agreement. This is just the addendum; the note will detail the actual terms of the loan.