First owner finance deal question

[Ken Nyczaj]

Hey all,

Looking to purchase my first MHP and as I presented the LOI to the bank and how the deal was structured they weren't too thrilled that I was looking to have no money in the deal. Here's how it was structured on the LOI to the seller:

$1,250,000 purchase with 80% bank financed and 20% owner financed. $1,000,000 bank financed and $250,000 owner financed.

Even with the bank being in first position, they saw the seller financed portion as the seller being in 2nd position, and if we were to be foreclosed upon, then the seller must be paid back their note by the bank before the property could be taken possession of. I guess the bank is looking at it like, if they loaned $1,000,000 and then we didn't perform, they'd then have to pay the seller $250,000 and would be at a loss.

Then, I thought, well what if the 2nd mortgage wasn't secured by the property but was an unsecured promissory note between buyer and seller, where we were only personally obligated to pay the note...

Just curious what others do in this type of scenario, haven't presented anything to the bank yet.

[Jaysen Medhurst]

Yeah, @Ken Nyczaj, many (most) commercial lenders are not comfortable with you being 100% leveraged. You can certainly shop around, but don't get your hopes up. If you're planning some value-add/forced appreciation, that may help get the bank more comfortable...or it may not.

I'm not following the foreclosure procedure you outlined. The whole point of being in first position is that lender gets what they are owned...first. They absolutely do not have to make the 2nd position lender whole before getting paid back themselves. Sounds like there is some confusion here.

That said, 100%-financed properties are a lot riskier than those with 20-25% down. The bank has legitimate concerns.

An unsecured note from the seller, may be an option, but I'd never accept that, if I were the owner.

Have you considered bringing in a capital partner on the deal?