I'm selling some rental properties and agreed to accept a "note" for 20% of the sales value as part of the deal to make it work. From what I understand, this is called a "subordinate note". How "secure" is this kind of transaction - that is, if the buyer defaults, what kind of remedy do I have? Is this the same as having a second mortage in which I receive monthly payments? How is the interest rate and term (number of years) determined? If the buyer stops making payments, do I get the property (or partial interest in it) back?
2007-01-08 11:36:57 · 3 answers · asked by Bill P 5 in Business & Finance ➔ Renting & Real Estate
The reason it is called subordinate is because it is secondary to the first loan. There is definately some risk involved. If the property is forclosed on, and sold at auction the first loan is paid, and the remainder of funds go to pay off each subordinate loan. You can still go after the defaulter for the remainder, but it may be hard to collect without legal fees. Most the time there are no troubles, but choose the buyer wisely.
2007-01-08 11:46:21 · answer #1 · answered by Ron B 3 · 0⤊ 0⤋
A Subordinate Note, as you suspected, is a Second Mortgage. You are in second position to forclose if the buyer should default. The lender for the other 80% of the purchase would be in first position.
It's not MOST secure position for you to be in, however, yes, you CAN forclose if the payments get behind -- even if the buyer has been paying on their first mortgage.
2007-01-08 11:46:21 · answer #2 · answered by hatchland 3 · 0⤊ 0⤋
None unless the business opportunity is real estate.
2016-05-23 15:31:14 · answer #3 · answered by Marlyss 3 · 0⤊ 0⤋