Should I do carryback financing if I will be a second position lien holder?

Question

I am selling a vacant piece of land. An interested buyer wants to give me 30% down and make payments on the rest. He is planning on taking out a construction loan and building on the property. He would make payments to me on the balance as he gets his draws on the construction loan with the final payment being at the time of the last draw. I would be in second position behind the bank giving the construction loan. Is this a good idea? What type of background work should I do to investigate? Why would he want to do it this way?

Answer 1

The reason he wants to do this is because the bank probably will not give him a loan for the land and the construction. They may not make loans on vacant land.

The problem I see here is that he is wanting to make payments from the draws on the construction loan so he is either overstating the work done to the bank to get the draws to make the payment or even the cost of the whole project.

Example: The land is selling for $45k. He gives you $15k down payment. Tells the bank he is building a $100k house, but intends to really spend $70k. How does he come up with receipts for the extra $30k he is telling the bank he is spending?

Sounds fishy to me. I would walk away or suggest that he give you the 30% down payment and you carry the mortgage and he make payments over some short period of time until it is paid off. Plus, what would happen if he does not finish the contruction of the house.

Answer 2

The institutional lending company normally want to be in first position, because private party individuals are not normally sophisticated enough to foreclose on the loan if the borrower default and do not make monthly payments.

This is normal, tell him to submit to you the same information he had to submit to the bank to include the application, credit report, appraisal and the loan approval from the first the bank. Also make sure your lien position is recorded by a title company with the terms written down and signed before the escrow closes.

He want to do this because he can not get a lender to approve his loan request any other way.

If he fails in the project or fail to make the agreed payments to you, you should foreclose on the note he signed for you.

There are companies that will do this, with no upfront fees from you. They collect when the foreclosure is complete and add their fees to the loan amount when collected.

I hope this has been of some use to you, good luck.

"FIGHT ON"

Answer 3

I even have closed over one hundred short sales as an authorized genuine assets broking provider. i think of i be attentive to what got here approximately. The prelim call record did no longer coach a judgment lien that the seller had and no person found out till your call enterprise went to insure the call. you're no longer required to pay for it. right here is what you're able to do: a million. pay it 2. have the genuine assets brokers pay it with their commissions 3. have the seller's agent negotiate with the lien holder for a diminished volume. 4. have the lien holder get rid of the lien if the seller signs and warning signs a promissory observe 5. Use between the above mixture. 6. renegotiate the finished short sale for a decrease purchase cost (i do no longer propose it) i individually could attempt to have the seller or the genuine assets brokers to pay for it or get it bumped off. If that fails, then i could pay for it if i replaced into getting very lots on the valuables. to stroll away and get your deposit back, scare the hell out of anybody by potential of asserting that the acquisition cost could desire to replicate the quantity you paid for the homestead and could be disclosed to anybody, which incorporate the seller's lender as a results of fact if it does not, it particularly is going to be considered loan fraud and you're transforming into anybody's license on the rail and sue the E&O coverage companies. Throw the be conscious "fraud" and that they assist you to circulate. besides, the seller won't be able to acquire any money from the fast sale, so they could desire to return your deposit. That reported, there's a family contributors in foreclosures. in case you will be able to make it artwork for each individual in contact, a minimum of attempt! additionally, in a typical transaction, in the event that they canceled, you will be able to desire to sue. besides the shown fact that, the seller has no money so in case you have been to sue to your damages, you does not be waiting to collect. you may desire to make a determination to the two get the concern resolved like I reported above or purely walk away. solid success!