Seller financing with seller owing taxes

[Mike P.]

I'm trying to buy this single family home through seller financing, this would be my first investment property deal. Renters are already in place, home is turnkey except for new carpet that the seller will put in. I spoke with the seller today and came to an agreement on terms. We have one issue that I can't get around though.

She owns the home free and clear but owes 10,000 to the local tax service, she is on a payment plan with them. I asked her to take out a second mortgage to pay off the taxes and that she would get the money back once I refinanced 12-24 months from closing. She can't qualify because she already got a new mortgage and is now unemployed. Her budget is so tight that she has to have the income from the renter to make the installment payment on the back taxes.

She need money now and I can't offer her much more then $1,000 down. I can't think of a way to make this work.

[Bill Gulley]

Yes Matt, you're correct. Your after tax interest expense would be about 1.7%, (@30%) worth more than that not need to show zero an imputed rate on your returns. The lender refinancing such a note can also assess the imputed rate to figure the equity gained, much like the rent credited on a lease purchase. Just because you can or could do something doesn't mean you should for the sake of razzel dazzle....

You don't try force something to make a deal out of every property.

The straight forward method here is for you to get a loan to pay off the tax bill, she subordinates the property for collateral for the loan, then you buy it and she finances the balance, but even that is probably too much brain damage, unless there aren't any other deals to be had. And, she needs to come down to cash flow. :)